Market participants face the danger of persistently higher inflation and a dismal economic outlook that strategists imagine fuels a robust mix of confusion and pessimism.
It comes as investors monitor a fresh batch of US economic data that may provide further clues as as to if inflation is on the decline and whether the Federal Reserve is more likely to announce one other rate hike at its next meeting in early May.
Bob Parker, senior adviser on the International Capital Markets Association, said investor confusion appears to be emerging as a giant topic within the financial markets.
“When you take a look at the investor positioning and investor mindset surveys, there is a huge buzz straight away,” Parker told CNBC’s “Squawk Box Europe” on Wednesday.
“Is inflation falling fast or not? To what extent is the US economy, and for that matter the European economy, slowing down? And what’s the recession risk? Parker said.
“So, given these uncertainties, I believe investors are reducing their risk straight away and are booking, to be honest, decent returns from the beginning of the yr.”
Parker said many investors were making the most of the “good returns” seen for the reason that start of the yr in each the US and Europe, as “clearly first quarter earnings will probably be very negative.”
Traders work on the ground of the Latest York Stock Exchange on April 21, 2023 in Latest York City.
Spencer Platt | Getty Images | News Getty Images
Looking ahead, Parker said the theme for May and June is more likely to be a rotation towards year-to-date underperforming stocks, “which is about value and defensive sectors and taking profits from cyclical and growth sectors.”
Value stocks are those believed to trade below their true value, while defensive stocks are inclined to provide stable returns regardless of the state of the stock market.
Cyclical stocks, viewed as the alternative of defensive stocks, generally follow economic cycles. Growth stocks discuss with firms which can be expected to outperform the general market.
‘Oil overdoes pessimism’
Fears of an impending recession appear to be there is growing, while many economists predict a period of recession in 2023.
Earlier this month, the International Monetary Fund released its weakest forecast for global growth over the medium term in greater than 30 years.
The Washington-based institution said global growth is more likely to be around 3%, meaning the worldwide economy shouldn’t be on course to return to pre-coronavirus levels within the medium term.
Gita Gopinath, the IMF’s first deputy managing director, has since said that the danger of a so-called “hard landing” stays even when the US economy can avoid recession.
Asked whether the downward trend in oil prices may be interpreted as a grim economic barometer, Giles Keating, director of Bitcoin Suisse, told CNBC’s Squawk Box Europe on Thursday: “I believe there is a general pessimism straight away about where the world economy is. going.”
He added: “I do not think things are that bad. There’s an excessive amount of worry straight away a few problem with one bank – and that is not similar to an issue across the banking sector, so I believe oil is overly pessimistic here.”
His comments referred to a different sharp decline in First Republic stock prices. The troubled San Francisco-based lender was seen by investors as a dangerous bank after the collapse last month of Silicon Valley Bank, which had an identical financial profile.
— Alex Harring, Hakyung Kim and Jesse Pound of CNBC contributed to this report.