July 2022 – More than a simple market rebound

June showed signs pointing to a market phase change. In July, those signs became clearer, we are now entering a market bottom formation phase.

SFRR ends July at +3.31% (-22.88% YTD), SFPG at +8.68% (-24.95% YTD), and SFQS at +11.33% (-17.13% YTD), while the MSCI World posts MTD returns of +10.88% in EUR (-5.11% YTD in EUR).

Click here to watch the interview with Enrique Bailly-Baillière, General Manager of Altex, which was broadcasted live by Negocios TV on July 21st (in Spanish).


  • July sees a major and significant market rebound
  • The probability of having seen the market bottom on June 16th increases
  • Growth continues to recover vs Value
  • US bonds rebound as well
  • Agricultural commodity prices continue to decline
  • Energy trades below highs, with significant declines in oil
  • US inflation hit a new high and the market reacted with rallies
  • Important resistance in the stock indices has been overcome

July continued the positive market trend that started on the 17th of June. The worsening macroeconomic news contrast with the improved performance of stock indices. Divergences of this kind are important, as the lows are usually in line with the general consensus of economic reality.

Markets have already accepted that the FED prefers recession to inflation, and market’s reaction has been positive since a known recession is better than unknown inflation. It is not certain that the US will go into recession but what is beyond all doubt is that it will control its inflation. The Fed has already set its machinery in motion to do so. We do not know how long it will take or how much of a slowdown it will trigger, but inflation will fall, and the developed world is more used to coping with recessions than with hyperinflation.

The threat of recession is already taking toll on decision making by both businesses and consumers. Major American corporations have announced that they will moderate staff hiring. Amazon is going a step further and reducing its workforce by 100,000. This, on the one hand, mitigates wage inflation but, on the other, impacts on employment figures. Consumer and business purchasing decisions also point to moderation.

As the market fears the Fed more than other macroeconomic events, such as relations with China or the war in Ukraine, any sign of moderation from the Fed will have a stronger effect than all other factors affecting policy decisions, including possible recessions.

In a nutshell, inflation at record highs pointing to a future moderation, tightening Fed although aware that its policy is already having positive effects, markets rebounding from extreme panic, growth stocks improving vs value cyclicals, inverted US yield curve pointing to a recession, macro indicators still in the expansion zone and employment figures still at the high end.

In the coming months we expect to see a market bottoming phase, with significant rises and falls in the 3900-4200 range of the S&P500. To substantially and consistently break out of that range, additional profound changes are necessary. A worsening of employment could fuel recession fears, although it could also be countered by a change in Fed policy. The most attractive sectors for investment are those linked to long term secular growth and clearer earnings visibility. Companies with recurring revenues and above-average market expansion expectations, such as software services (SAAS) or biotechnology companies, which have been excessively punished in this crisis, may offer good opportunities to buy. We will avoid the more cyclical sectors of the economy and the volatility of commodities

As a hedge, US bonds are beginning to offer value, although for the European investor, buying US dollars at parity with the Euro could be a significant risk in the medium term. Europe cannot afford an excessively weak Euro because of our dependence on foreign energy and commodities.

Over the past months we have revised our hedging models to better adapt to different market scenarios. We have also increased the momentum sensitivity in our stock selection to allow for faster portfolio turnovers in the face of market phase shifts, such as the one we are seeing. These changes are already improving the performance of our funds and portfolios.

Our risk thermometer has returned to investment territory since the 6th of July. Markets have anticipated the economic downturn, which is now more visible, as it will also anticipate its future recovery. Historical data reinforces the benefits of investing and accumulating as markets begin to form a floor and fear still remains high.