Added to this is the fear that the world economy is approaching a recession and geopolitical conflicts (Ukraine and Russia, China and Taiwan). All these factors may, however, have already been priced in by the market, as since the year’s lows in mid-June, major indices are up more than 15%, leading analysts to debate whether the market is ready to extend your winning streak or if it’s a mere rebound.
Michael J. Wilson, an analyst at Morgan Stanley, has said the rally is overblown due to risks to the economy, tighter monetary policy and the outlook for corporate earnings, according to a Bloomberg note. “The macro, political and earnings set-up is much less favorable for equities today,” Wilson said, noting that disappointing upcoming corporate reports could spark the next downside in equities.
Conversely, analysts at JPMorgan Chase have mentioned that the recent rally could extend into the end of the year driven by growth stocks (those that tend to outperform the broader market, such as tech stocks). especially after US inflation slowed to 8.5% in July (from 9.1% in June).
According to a Bank of America (BofA) survey, investors remain bearish, but no longer in an “apocalyptic” way, due to rising hopes that possible surprises on inflation and interest rates will end in the coming quarters. .
BofA, which surveyed investors overseeing $836 billion in assets between August 5 and 11, said they had trimmed a net underweight position in equities to less than 26%. This is an improvement from a low of 44% in July, a level last seen in the 2008 global financial crisis, Reuters said in a note.
According to BofA, August saw a large rotation into US technology and consumer stocks, while investors sold defensive papers such as utilities and consumer staples, as well as UK stocks.