HSBC strategist doubts recent market rally

US stocks have rallied so far in July, and a nearly 10% gain in the S&P 500 since June 16 has led to speculation from some investors as to whether the market has finally bottomed out. .

But in the opinion of at least one market strategist, the answer to this question is an emphatic “No”.

“It still looks a little wonky,” Max Kettner, HSBC’s chief multi-asset strategist, told Yahoo Finance Live on Monday. “For me, there’s this bear market rally that we’re seeing, because the underlying fundamentals look really quite weak.”

The classic definition of a bear market is a 20% decline from highs, and a market breaks out of the bear market when it recovers 20% from lows.

The summer rally sent the Dow up 7% from its June low; the S&P 500 and the Nasdaq each rebounded about 10%.

However, the fundamentals of the US economy have softened during this market rally.

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 13, 2022. REUTERS/Brendan McDermid

Among other lackluster recent data, last week the National Association of Realtors said existing home sales fell 5.4% in June to a two-year low. Business activity in July contracted for the first time since May 2020, according to data on the services and manufacturing sectors from S&P Global.

The first look at government GDP data released Thursday is expected to show the economy grew a lackluster 0.5% in the second quarter, although data from the Atlanta Fed suggests economic growth has slowed. contracted for the second consecutive time in the last quarter.

JPMorgan strategists led by Mislav Matejka posited in a note released this week that the Federal Reserve will take a more dovish stance, encouraged by bets that inflation has peaked and thus leading to a more positive setup for stocks in the second. semester.

Kettner isn’t convinced that a European Central Bank or Fed pause in rate hikes — or even a rate cut — would automatically be good for equities, because the move would be “for the wrong reasons.”

“[This pivot would] will be because there is a full-scale recession approaching and not because inflation has already magically come down to 2% and therefore everyone is already happy,” Kettner said.

Evercore ISI Vice Chairman Krishna Guha is on the same page, writing in a recent note that the market is too optimistic anticipating a more benign tone on inflation at the next Reserve meeting. federal.

So if stocks are set to suffer more, where should investors look? Kettner recommends low volatility equities, high income and high dividend strategies, as well as fixed income securities and equities in emerging markets.

Julie Hyman is the co-presenter of Yahoo Finance Live, weekdays 9-11 a.m. ET. Follow her on Twitter @juleshymanand Lily his other stories.

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