Correction or bear market?
JP Morgan claims to maintain “caution with actionswaiting for the ‘bad is bad’ phase to arrive, and the stock markets to weaken as bond yields fall” (something that is already happening now following the weak data published in the United States and the Eurozone).
“In this context,” they point out, “No risky operations are carried outsince this is the opposite of recovery”, so they advise taking refuge in “the purely defensive values“.
According to his forecast, the European stock markets will continue to be under pressure Due to the slowdown in activity” that the PMI indicators are showing, and also by “lower expected business results, the fall in bond yields” and the “high geopolitical risk“.
On the other hand, they argue that “the VIX (volatility index) has not had a proper capitulation for a while and the credit spreads are extremely narrow.” In this sense, they add that “the Federal Reserve will begin to relax its policies, but in a more reactive manner and in response to weakening growth, that is, it is likely that be behind the curve; and that may not be enough to drive a rebound” of the bags.
In his opinion, “we must be cautious” with the European stock markets, although he adds that “Towards the end of the year, an opportunity to adopt a bullish attitude will present itself“.
Javier Molinasenior market analyst for eToro said it believes that “key levels have not been broken and we could be looking at a more or less serious correction, but not the start of a prolonged bear market; and the price declines, while significant, may be reflecting a necessary adjustment after a period of unsustainable appreciation.”
Thus, he believes that “a correction of this type can be seen as an opportunity for the market to breathe and stabilise. This does not necessarily imply a change of trend towards a prolonged bear market, but rather an adjustment to more sustainable and realistic valuations. In this context, the current volatility could be a transitory phase before the markets find a footing.” “new balance”.
Short-term volatility begins on the stock markets
Thinking short term, Chris Beauchampchief analyst at IGstates that “these highly volatile movements in the stock markets” do not stop from one day to the next and We are likely to have a summer with high volatilityespecially as we await developments in the Middle East.”
For its part, Stephen Innesmanager SPI Asset Managementsays that “although today’s panic may be tomorrow’s joke, it certainly highlights how nervous the markets are in the face of any rumors that emerge on the US economic data front.”
From Bankinterits strategists comment that “the new recession scenario in the United States seems precipitous” and they consider that “Everything points to an exaggerated reaction in an environment of low volumes, after a few very good months for the stock market.”
His “most likely scenario for the week” is a “Severe correction (by Monday) and a gradual return to calm, ending on a better note“.
In his opinion, “after a turbulent start, Stabilizing and regaining some calm would be a good outcome. for the week.” For the experts of Julius Baerthe central forecast “remains that US growth will be slower, but solidduring the second half of the year, with a limited risk of recession over the next 12 months.”
“In other words,” they conclude, “the Aggressive revaluation of prices in bond and stock markets due to the resurgence of the debate on the recession They could well be exaggerated“.
Emergency rate cut?
Amid the fervor in the markets, a group of analysts began to call for a rapid rate cut by the Fed to avoid a recession in one of the world’s major economies: the United States.
Jean-Louis Nakamuradirector of Conviction Equities (Vontobel boutique), focused on the stock market falls that have started following the latest economic data, and points out that “although it was not very surprising“The correction has been more brutal and concentrated in time than expected.”
“It materialized in a rapid discounting of the Federal Reserve funds rate cuts (both in number and magnitude), a sharp drop in long-term US bond yields and a jump in the yen/USD exchange rate of more than 13% in the last three weeks,” he said.
“If the collapse in risk asset prices is prolonged significantly, An emergency cut by the Fed cannot be ruled out. In that case, the stock rebound could be as brutal as the recent sell-off, and sectors and markets most supported by secular drivers and/or interest rate sensitivity (technology, artificial intelligence, the US, Taiwan, India) would be the ones to progress most quickly,” he said.
Damian McIntyreportfolio manager at Federated Hermes, says that, given the deteriorating economic outlook, “The Federal Reserve futures market now expects 4.6 rate cuts between now and the end of the yearincluding a significant likelihood of a 50 basis point cut to kick off the cycle in September.”
Despite the outlook painted by the indicators, analysts at Oxford Economics warn of the dangers of “overreacting to a single month of data,” so instead, They recommend focusing on “the trend”.
In this sense, they consider that “Expectations of aggressive rate cuts in September are exaggerated“, which is why they maintain their forecast that “the Federal Reserve will move forward with a 25 basis point cut” at the September meeting.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
