After hitting bottom, the only thing left is to go up, and analysts debate whether the worst for the stock market is over and it is time to bet on its rise, or if it can fall even further.
So far this year, the S&P 500, the main stock market index in the United States, has accumulated a drop of 10%. The performance of the other two indexes, the industrial Dow Jones and the technological Nasdaq, do not differ so much: so far this year, they have fallen 6% and 17%, respectively.
The market decline is due to several reasons. On the one hand, the Federal Reserve, and other central banks in the world, have begun a restrictive monetary policy by raising their rates and reducing the amount of money in the economy so that people and companies spend less, this in an effort to stop inflation (lower demand tends to lower prices), which in recent months has reached multi-decade highs. In July, inflation in the United States stood at 8.5%, while in Mexico it was 8.15%.
Added to this is the fear that the world economy is approaching a recession and geopolitical conflicts (Ukraine and Russia, China and Taiwan). All of 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 stocks such as utilities and consumer staples, as well as UK stocks.
Fear in the market prevails
Optimism still does not completely reign in the market. Investors remain cautious. A BofA survey shows fears of an economic slowdown continued to rise: 58% of investors expect a global economic recession in the next 12 months, up from 47% last month and the highest figure since May 2020.
“Investors around the world are worried about the combination of rising inflation, the war in Ukraine and the possibility of a recession,” agrees Iqbal Khan, president of UBS Europe, Middle East and Africa and co-chairman of UBS Global Wealth Management.
According to the latest quarterly survey of 2,800 investors and entrepreneurs in 14 markets, UBS Investor Sentiment, 56% of investors globally see more volatility than usual. However, most see potential investment opportunities if markets continue to decline.
“In challenging times like these, it is important that investors continue to seek expert guidance and insights to understand the environment and potential opportunities to support their liquidity, longevity and legacy needs,” Khan said.
