Strategists at Goldman Sachs Group Inc. and Sanford C. Bernstein have warned that the recent sharp rebound in equity markets will not last as macroeconomic data continues to deteriorate and earnings forecasts are cut short.
“Without clear signs of a positive change in macro momentum, temporary re-risk could actually increase the risk of another leg down in the market rather than signal the end of the bear market,” said Goldman strategists led by Cecilia Mariotti. It was written in an August note. 4. 4.
once again with investors equities In recent weeks, Goldman strategists have said that market conditions have improved from a very bearish level seen in June, and a swing in asset allocation could fuel a rally in the near term. But ultimately, strategists said they “are not convinced that we have yet passed the ‘true’ trough in the situation, and we think the path from here is likely to depend more on macroeconomic data.”
Bernstein strategists Sarah McCarthy and Mark Diver said in a note Thursday that the cycle of declining earnings is just beginning with outflows from stock funds. He said investors stopped buying equities in the second quarter, but funds have yet to see a reversal of the “huge” inflows of $200 billion seen in the first quarter.
“We expect the market to have another leg down in the short term,” wrote Bernstein’s strategists.
European and US stock markets posted their biggest monthly gains since 2020 in July as investors turned optimistic about corporate earnings inflation and a gleaming consumer outlook proved resilient, while weak economic data led to a cut by the Federal Reserve. Dovish raised the bet on the pivot. The decline in bond yields has buoyed the Nasdaq 100 by 19% from its June lows.
But with Federal Reserve leaders pledging to continue an aggressive fight to quell inflation despite recession risks, strategists have cautioned against a continued recovery in stock markets. And although corporate earnings this season have been better than expected, strategists from the likes of Morgan Stanley and Bank of America Corp. have said that profit projections will need to see a more robust cut before stocks hit real lows. .
Berenberg strategists Edward Abbott and Jonathan Stubbs also warned of a threat to equities from impending weak earnings. Strategists’ top-down model showed corporate earnings are likely to decline 15% to 20% year-on-year as margins come under pressure, they wrote in a note on Aug.
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