The main Wall Street banks advise to take a step back, especially in September and October. They do not expect a quick recovery of the markets after the falls of August 5.
Two Wall Street giants like Goldman Sachs (GS) and Bank of America (BofA) have has come out to warn its clients that the market cleansing, after the recent “Black Monday” of last August 5th, has not yet ended, so rapid recovery is at risk. The worrying thing now is the speed with which the market has returned to where it was before, which shows that it is unfortunately almost back to the same problem it was a month ago, Christian Mueller-Glissmann, director of GS, explained to CNBC.
The expert said that a certain correction in the markets was foreseeable, since the data released at the beginning of the summer showed how the global economy was gradually slowing down. “In reality, We were concerned about a small correction “Because at the same time, while there was bullish positioning, the macroeconomic momentum was a bit weaker. There were negative macroeconomic surprises in the US for about a month and a half before that, and we actually started to see the macroeconomic surprises in Europe and China turning negative as well,” he said.
In his view, what happened from Black Monday onwards was obviously a huge technical overreaction which also created a buying opportunity for investors who were able to benefit from lower prices. “What I find quite interesting is that Risk appetite has not returned to where we were before and what has actually happened is that safe assets (bonds, gold, yen, Swiss francs) have not really been sold.“, held.
Despite concerns about the rapid recovery of the markets, Mueller-Glissmann is positive about the fact that investor sentiment has become more moderate. “The good news is that while the S&P is back to where it was before, complacency is not. We are not in the same kind of extreme bullish sentiment and positioning.”he said.
The amicus curiae of the market
But GS analysts have not been the only ones to warn about the recovery of the stock markets, since BofA also does not trust that the path has really been cleared and advises covering one’s back against bearish threats because Stock markets remain fragile and September and October are risky months. “With volatility back to relatively low levels, stocks have resumed their rally. However, given the numerous threats, ranging from macroeconomic to political and seasonal, we believe that continued hedging of downside risk remains prudent,” warned BofA. The speed of this decline in volatility has been historic, with the VIX falling from its peak to below its long-term average in just 7 days, which is the fastest pace of decline in history. BofA attributes the sharp spike in volatility on “Black Monday”, when Japan’s Nikkei index fell by 12%, to the lack of liquidity in the markets, which played a key role in the summer shock that was experienced.
However, he finds it surprising that long-term volatility has completely retreated from its peak despite growing uncertainty about a hard economic landing, which has been worrying the market ever since, especially with regard to the US. That is why BofA strategists insist, even though fear is gradually fading, on their advice to hedge against this risk of recession and remain cautious.
In this context, Julius Baer experts continue to recommend diversifying into cyclical stocks, but now they are particularly emphasizing that this should be done selectively. For long-term investors, he advises sticking to US growth stocks (growth) large-cap stocks, which are likely to continue to lead the secular bull market. “In our “Market Outlook Mid-Year 2024“’, published in late May, we advised investors to stay in large-cap growth stocks with a bias towards the US over the long term, as we expect the US to continue to lead the secular bull market. We also recommend deploying fresh capital in stocks that should benefit from the cyclical rebound we foresee for the second half of 2024 and beyond, led mainly by a recovery in trade and industry. However, we emphasize taking a selective approach to this, as the cyclical space in general has already largely discounted a recovery in global growth.” Within that diversification in cyclicals, they have a preference for quality industrials and mid-caps.
Source: Ambito
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