Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

After sizzling rebound, investors weigh whether stocks have more bounce

Economy Mar 18, 2022 09:00PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A sign is seen outside the 11 Wall St. entrance of the New York Stock Exchange (NYSE) in New York, U.S., March 1, 2021. REUTERS/Brendan McDermid

By Lewis Krauskopf

NEW YORK (Reuters) - Wall Street stormed back this week after absorbing a long-awaited rate hike from the Federal Reserve, leaving investors to determine whether stocks are set for a sustained rebound or more turbulence.

Following a months-long drubbing, the S&P 500 delivered its best weekly gain since November 2020 as investors cheered increased clarity on monetary policy and an encouraging assessment of the U.S. economy from the Fed. The surge cut the index’s year-to-date losses by nearly half, though it is still down 6.7% for 2022 after falling into a correction last month.

Whether to hop on board the rally is a thorny question in a market that still faces its share of risks – chief among them the hawkish rate hike path the Fed unveiled on Wednesday and geopolitical uncertainty over Russia’s invasion of Ukraine.

Still, some big banks believe the worst may be over, for now. Strategists at UBS Global Wealth Management on Friday said the projected pace of Fed tightening is “consistent with rising stocks” and advised clients to remain invested in equities.

JPMorgan (NYSE:JPM) earlier in the week forecast the S&P 500 would end the year at 4,900, about 10% above Friday’s close, saying that markets “have now cleared the much-anticipated Fed liftoff with policy likely as hawkish as it gets."

Others are less sanguine. Worries that the Fed’s fight against inflation could bruise growth were apparent in the bond market, where a flattening of the yield curve accelerated after the Fed's policy meeting this week. An inverted yield curve, in which yields of shorter-term government bonds rise above those of longer-term ones, has been a reliable predictor of past recessions.

Stubborn inflation, sky-high commodity prices and few signs of an end to the war in Ukraine further cloud the picture for investors, said Rick Meckler, a partner at Cherry Lane Investments.

“The markets are more complicated now by interest rates, they are more complicated by inflation, and they are definitely more complicated by the Russian situation,” he said. “You had a lot of people in this week who thought we made a bottom, but it’s difficult to keep having higher and higher prices just based on that.”

Many also believe the week’s sharp gains in stocks are unlikely to quiet the economic concerns that fanned bearish sentiment in recent months.

Fund managers' allocation to cash stand at their highest levels since April 2020, according to BofA Global Research's monthly survey. Bearish sentiment among retail investors is close to 50%, the latest survey from the American Association of Individual Investors showed, well above the historic average of 30.5%.

"The thing we are most concerned about right now ... is really a question of whether we are going to go into a recession or not,” said King Lip, chief strategist at BakerAvenue Asset Management.

Wary of a potential "stagflationary" environment of slowing growth and rising inflation, Lip's firm is investing in energy shares, commodities and precious metals such as gold ETFs or gold-mining stocks.

Cresset Capital Management is recommending that clients underweight equities and raise their exposure to gold, which is viewed as a safe-haven asset, said Jack Ablin, Cresset's chief investment officer.

“We see certainly a pretty aggressive Fed that has really made inflation-fighting its number one priority and not necessarily protecting equity market values,” Ablin said.

To be sure, signs of rampant pessimism – such as high cash levels and dour sentiment -- are often seen as contrarian indicators that are positive for equities. Indeed, hedge funds tracked by BoFA Global Research were recently piling into cyclical stocks, which tend to thrive when economic growth is strong.

“Despite weakening optimism on global growth, clients do not appear to be positioning for a recession,” BoFA’s strategists wrote.

Stocks historically have weathered rate-hike cycles fairly well. Since 1983, the S&P 500 has returned an average of 5.3% in the six months following the first Fed rate rise of a cycle, data from UBS showed.

"The Fed’s goal remains to engineer a soft landing for the economy," the firm's analysts wrote. "We advise investors to prepare for higher rates while remaining engaged with equity markets."

After sizzling rebound, investors weigh whether stocks have more bounce
 

Related Articles

Marketmind: Inflation angst resurfaces
Marketmind: Inflation angst resurfaces By Reuters - Aug 17, 2022

(Reuters) - A look at the day ahead in U.S. and global markets from Mike Dolan. Investor hopes that global inflation is finally on the wane or that central banks can relax were...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
William Bailey
William Bailey Mar 19, 2022 12:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Fed pumped in 50 billion last week and bomds were sold off big … this is a temporay bump
Trumpster Rocks
Trumpster Rocks Mar 18, 2022 9:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
After the Farce since the decision by the fed for 2 days Monday should be a give back the ridiculous gains .. no one is buying into this market but the big guns.... manipulating at will. One hand washes the other always.
Rob Fordham
Rob Fordham Mar 18, 2022 9:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ur name says i am not too brite
William Bailey
William Bailey Mar 18, 2022 9:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yep, Fed gave them 50 billion in QE last week ( look at balance sheet) and oil and bonds all sold to fuel stocks … its temp
Benjamin USA
Benjamin USA Mar 18, 2022 9:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Triggered much? Lol
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email