The U.S. stock market had what can be described as a tumultuous week last week, and it has been an extremely difficult year for investing so far this year. But some strategists believe the recent decline is unlikely to last forever.

As of Monday’s close, the S&P 500 had fallen more than 16% since the start of the year and was down nearly 12% in the second quarter alone. The pan-European Stoxx 600 was down more than 13% for the year through Tuesday, and MSCI’s index of Asia ex-Japan was down more than 16% at the close on Tuesday.

Investors have been fleeing risky assets due to a series of intertwined factors, including persistently high inflation, slowing economic growth, the conflict between Russia and Ukraine, supply chain difficulties and, most importantly, supply shortages across the globe. Big central banks may raise interest rates sharply to curb price increases.

Flee on rallies or buy on dips

Still, some investment strategists said on Tuesday that investors still have an opportunity to generate returns, although their investment strategies may need to be more selective.

“Obviously there’s a lot of panic in the market, so there’s a lot of volatility. I don’t think we’ve reached a level where we’ve completely capitulated to the ‘sell faction’, at least from the measures we’re following, and I don’t think we’re in oversold territory at the moment. ” said Fahad Kamal, chief investment officer of Kleinwort Hambros, in an interview with the media.

“A fairly strong economic backdrop and fundamentally strong corporates — offsetting mixed signals from rate hikes and inflation concerns, means traders are having a hard time acknowledging the possibility of a full-blown bear market,” Kamal said.

However, he maintains a “neutral” stance on stocks, considering that global equities have continued to rebound sharply over the past 18 months from their all-time lows during the COVID-19 pandemic, which he believes is long overdue for a consolidation. “There are good reasons to think that the situation is not as dire as it has been in the past few days and this year in general,” Kamal said.

“One of the reasons is obviously that we still have a strong economic model,” he said. “If you want a job, you can get it; if you want financing, of course you can; if you want to borrow money, albeit at slightly higher interest rates,” he said. , you can still borrow money.”

According to the Kleinwort investment model, Kamal believes that the current economic system is still quite attractive to long-term investors, and that most economists have not yet predicted a recession, but he admits that stock valuations are still not cheap and that momentum is “serious” Negativity”.

“Sentiment hasn’t quite reached the level of collapse, and we’re not at the point where people want to flee anyway. There’s still a lot of smaller-scale ‘buy the dip’ sentiment, at least in some parts of the market.” “We do think there is still economic fundamentals support and that’s why we didn’t reduce our risk appetite and we didn’t fully sit on the sidelines because there was enough support, especially in corporate earnings,” Kamal said.

Stock picking strategies are increasingly important

Monica Defend, head of the Amundi Institute, said in an interview on Tuesday that risk assets will continue to suffer as they have so far in 2022, as long as real interest rates, or market rates adjusted for inflation, continue to rise.

“It’s not just about the number and scale of rate hikes, it’s about quantitative tightening, and therefore the tightness of financial conditions and the drying up of liquidity,” she added.

Like Kamal, she also did not foresee whether investors would pull out of the stock market in a big way, typical of long-term bear markets. Instead, she hinted that many investors will be eager to get back into the stock market once volatility subsides.

“To see a moderation in volatility, markets would have to fully reflect the forward guidance provided by central banks in pricing, which is not the case yet,” Defend explained.

Defend said corporate earnings could provide an “anchor” for investors, but warned that future earnings risks compressing margins as the gap between producer prices (PPI) and consumer prices (CPI) widens.

While it may be difficult to establish a broad top-down approach to the stock market at the moment, she said, opportunities could be plentiful for investors who love investing in high-quality and value stocks, including financials, while these stocks May benefit from an environment of rising interest rates.

On the back of the stock market turmoil, credit and interest rate markets have also sold off in recent weeks, while the traditional safe-haven U.S. dollar has rallied sharply, signaling a general rise in bearish sentiment in recent weeks.

Given the low starting point of expectations, risk assets and developed-market bonds have room to rise sharply if that changes, HSBC multi-asset strategists said in a note on Tuesday.

However, HSBC remained staunchly risk-averse as the UK bank’s forecast showed “a very likely economic growth shock over the next six months”.

“Our overall sentiment and positioning metrics are just above the 10th percentile. Historically, such levels have indicated more positive returns in a combination of equity markets and developed-world sovereign bonds, or cyclical stocks and defensive stocks. ” Max Kettner, chief multi-asset strategist at HSBC, said in a note on Tuesday. He also said it could also show that the downward trajectory will be difficult to reverse without some fresh fundamental support at the macroeconomic level.

This article is reprinted from: https://news.futunn.com/post/15420555?src=3&report_type=market&report_id=205313&futusource=news_headline_list
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