![]() There’s one trade that could offer a big support to equities. But during the waves of selling this year, it only got as low as 27. A measure from Bank of America that combines the S&P 500’s trailing price-to-earnings ratio with inflation has fallen below 20 before each market trough since the 1950s. Some technical indicators also show the US stocks will resume declines. That’s about 2% higher than current levels. Hartnett recommends taking profits should the S&P 500 climb above 4,328 points, he wrote in a recent note. Investors will be scouring for clues on that front at the Fed’s annual Jackson Hole gathering this week. But he reckons the central bank is “nowhere near done” on tightening. Inflows to stocks and bonds suggest “very few fear” the Fed, according to strategist Michael Hartnett. Read More: BofA to JPMorgan Cool on European Equities After Summer RallyĪnd while investors in Bank of America Corp.’s latest global fund manager survey have turned less pessimistic about global growth, sentiment is still bearish. strategist Beata Manthey sees earnings falling 2% this year and 5% in 2023. And broad economic indicators - such as the US labor market - have held up strongly.īut economists forecast a slowdown in business activity from here on, while strategists say companies will struggle to keep raising prices to defend margins, threatening earnings in the second half. The second-quarter earnings season did much to restore faith in the health of corporate America and Europe as companies largely proved demand was robust enough for them to pass on higher costs. Bets of a dovish Fed pivot are premature and earnings don’t reflect the real risk of a US recession next year.” “I don’t think we’re out of the woods with one month of inflation cooling. “What we’ve seen at this juncture is a bear market rally and we don’t want to chase it,” Li said, referring to equities. But for stocks, it’s a risk to earnings that many investors may be unwilling to bear. The economic outlook is once again cloudy as Fed officials have indicated they’re not keen to stop tightening until they’re sure that inflation won’t flare up again, even at the cost of some economic “pain,” according to Wei Li, global chief investment strategist at BlackRock Inc.įor government bonds, that means a potential flight-to-safety that would also benefit debt from investment grade firms. Having moved in tandem, the two are now set to diverge, with bonds looking better placed to extend the rally as the dash to safety in an economic downturn will offset a rise in risk premiums. And companies’ bonds have gained 4.6% in the US and 3.4% globally since bottoming out in mid-June. The spark was lit by resilient earnings and hopes that a slight cooling in rampant inflation would get the Federal Reserve to slow the pace of its rate hikes in time to avert an economic contraction.Ī near 12% advance in July and August has put US stocks on course for one of their best summers on record. Seized Superyacht to Be Auctioned to Pay JPMorgan LoanĪfter a brutal first half, both markets were primed for a rebound. Recession Fears Set to Split Stocks and Bonds After Summer Rally Powell Has Chance to Reset Market Expectations at Jackson Hole US Mortgage Lenders Are Starting to Go Broke Ukraine Latest: Russian Diplomat Sees No Mediated End to War But with fall nearing, equities are set to fade while bonds strengthen as central bank tightening and recession fears take hold once again. (Bloomberg) - It’s been a summer of love for both stocks and company bonds.
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