- Even in Europe, the epicentre of the geopolitical crisis, the Stoxx 600 has recouped the initial losses suffered after Russia’s invasion of Ukraine.
- Among the reasons that investors discount the idea of a near-term slump are strong employment numbers in the U.S.
- Still, both say that for the broader market, the upside is limited.
Whatever problems global stock investors are facing, they are worse in other markets, and that may be enough to keep the share rally going for the time being as reported by Yahoo.
Global commodity supplies
Stocks recovered in record time from the initial shock of the war in Ukraine and the havoc it’s wreaked on global commodity supplies.
That followed their resistance to successive waves of the coronavirus pandemic since 2020.
But the wall of worry that stocks have to climb right now is getting higher and higher as rampant inflation squeezes demand, economic growth slows and central banks look to finally end the era of excessively loose monetary policy.
“With cash and bonds offering negative real yields, investors are still inclined to buy the dips in global equities, despite deteriorating fundamentals,” Citigroup Inc. strategists led by Robert Buckland wrote in a note on Friday.
Even in Europe, the epicentre of the geopolitical crisis, the Stoxx 600 has recouped the initial losses suffered after Russia’s invasion of Ukraine.
“Old habits die hard too — ‘buy the dip’ might be mocked quite a bit, but it is a sound strategy.”
Some of the rebound is down to the recent rout in the world’s other major asset class.
Inflation is also eating away bank deposits, and mortgage rates are rising, leaving fewer places to allocate money.
“The first quarter was a challenging quarter for stocks, but more so for bonds,” said Marija Veitmane, a senior strategist at State Street Global Markets.
Retail traders may also be playing a part in the latest gains.
Another force is more technical and less influenced by worrying global headlines about Ukraine and commodities.
Market players such as so-called risk parity funds or managed futures accounts have poured money into the market as they re-adjust their position amid the price gains and reduction in volatility.
When it comes to the negative economic signals, strategists at JPMorgan Chase & Co. are among those reassuring that the recent inversion in the U.S. Treasury yield curve doesn’t spell imminent trouble.
Among the reasons that investors discount the idea of a near-term slump are strong employment numbers in the U.S., There’s also consumers’ pandemic savings cushion and solid corporate balance sheets to fund buybacks.
Meanwhile, the energy-price shock after the invasion has eased.
For those convinced that the rebound has legs, the question is what to buy.
Philippe Jabre, the founder of Jabre Captial Partners, says his multi-asset hedge fund is focusing on stocks with exposure to commodities, and financials.
“We are at the early stages of this bear market, we will see new lows over the summer,” he said.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!