It’s a key week for the stock market. If you’re not nervous, you should be, this global strategist warns.
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Investors have got the jitters as a big week unfolds — several central bank meetings including the Fed, earnings from Apple and Amazon.com, and jobs data. Yikes.
Any investor out there who isn’t nervous, perhaps should recheck his gut, says our call of the day, from Standard Chartered’s global head of research, Eric Robertsen.
“We do not expect an extreme economic hard landing, but we think the proverbial Goldilocks scenario is too optimistic,” Robertsen told clients in a Sunday note, adding that they are “now turning cautious on risky assets.”
Robertsen explains the two sides of an important market debate right now — the just-right Goldilocks crowd and the “recessionist” bears.
The former is growing confident with their view that inflation and central bank tightening is nearing a peak and any recession will be “shallow and short-lived,” he explains. The reduction of that “central-bank driven left-side tail risk” matters more to markets than any slowdown, that side also says.
“A central bank pause, declining inflation, and attractive yields and valuations will prompt investors to reduce their underweight exposure and increase their allocation to risky assets, the Goldilocks camp argues,” he said.
He says the varied year-to-date performance across asset classes reveals 2022’s laggards are 2023’s outperformers so far. “This suggests that short-covering may be a significant contributor to performance so far, rather than overwhelming faith in the Goldilocks economy.
“The outperforming sectors are distinctly pro-cyclical – which is surprising with recession themes all the rage,” he says, noting that “ominous message about the health of the labor market” from tech job cuts.
On the other side, the bears say investors are overstating a decline in volatility and understating economic risks, writes Robertsen, who is on board here, hence his caution on riskier assets. The so-called fear gauge, the CBOE Volatility Index, or VIX
VIX
didn’t register new highs last year when stocks tumbled, leading some to say it was a broken indicator.
“Real-time indicators are showing a loss of economic momentum, while others – such as the U.S. labor market – have yet to reflect growing economic headwinds,” he said. “Underlying the bear case is the view that we have yet to feel the full cumulative impact of the most aggressive monetary tightening cycle in decades.”
He says “volatility measures have fallen too far and the improvement in risky assets is due for a pause.” The catalyst for this pause could be any number of things: aggressive rate cuts priced into the U.S. money-market curve that will be unwound, a too-tight move from the European Central Bank or even an actual tightening from Bank of Japan, for example, said Robertsen.
Should the Fed disappoint markets this week
Risk assets may also struggle with the Fed’s message this week if it fails to reassure the rate-hiking cycle is complete, says Robertse,n who expects the central bank will push back on “aggressive easing priced into the money-market curve.”
Read: Wall Street’s ‘fear gauge’ flashes warning that stocks might be headed off a cliff
The markets
Dow futures
YM00
are down 200 points, with those for the S&P 500
ES00
also weak, but Nasdaq-100 futures
NQ00
really leading the premarket gloom. Bond yields
BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
creeping up and oil
CL
pulling back. The China CSI
XX:000300
rose slightly as the market reopened after a week off. The Hang Seng
HK:HSI
slumped 2.7% as Alibaba fell (more in buzz) and Taiwan’s index
TH:SET
surged 3.7% as Taiwan Semi
TW:2330
soared.
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The buzz
The A-listers of earnings are lining up this week, with not just Apple
AAPL
and Amazon.com
AMZN,
but Alphabet’s Google
GOOGL,
Meta
META,
Starbucks
SBUX,
McDonald’s
MCD,
Caterpillar
CAT
and Ford
F
as well.
Alibaba shares
BABA
HK:9988
are tracking a slump in Hong Kong amid speculation the company will shift headquarters to Singapore. Alibaba dismissed the rumors. And shares of Baidu are bucking a weaker landscape for tech, with reports the China tech group is developing its own AI search engine.
Russia’s invasion of Ukraine will lead to lower oil and gas demand and a move to greener sources, says BP
BP
The data calendar is quiet for Monday, but the week is busy with updates on the housing market, manufacturing, unit labor costs and nonfarm payrolls.
A 25-basis point hike is forecast from the Fed this week, while a 50-basis point cut is expected from the ECB and Bank of England, which could narrowing the differential between the two sides.
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The tickers
These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:
| Ticker | Security name |
| TSLA | Tesla |
| GME | GameStop |
| LCID | Lucid Group I |
| APE | AMC Entertainment Holdings preferred shares |
| BBBY | Bed Bath & Beyond |
| AMC | AMC Entertainment Holdings |
| NIO | NIO |
| MULN | Mullen Automotive |
| AAPL | Apple |
| AMZN | Amazon |
Random reads
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