Is a recession priced in stock markets?
My Bloomberg terminal is filled with bears, Blackrock says we should shun most stocks as the market is simply not pricing in a recession and a ‘hard landing’ sort of scenario while Goldman Sachs has downgraded equities to underweight in their asset allocation matrix, a similar move made by Shaw’s Chief Investment Officer a few days ago, saying that evidence that inflation is becoming persistent means higher interest rates, tightening financial conditions and slower world growth. All three create more difficult conditions for growth assets, prompting a move to underweight in multi-asset portfolios. In the most recent survey from Bank of America, it showed a record 52% of respondents underweight stocks and overweight cash while other crowded trades included long the US dollar, long oil and commodities and short treasuries. Most of these trends have remained solid, although commodities/energy less so as global growth fears bubble to the surface. In tomorrow morning’s Portfolio Positioning Report we’ll detail what we believe comes next and dig further into the stocks that we’ve bought this week. While at MM, we agree that there are many headwinds for equities, we also believe the consensus call & positioning is very bearish, and strong countertrend moves are now very likely. Turning bearish after the market has fallen ~10% is not the approach we are taking.
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