Global stocks have had a roller-coaster ride in the past few months. Declines have been driven by fears that central banks will remain hawkish for longer and tip the economy into a recession, while rallies have been fuelled by low investor positioning and optimism around peaking inflation in the United States.Article content
Strategists at top banks including Deutsche Bank AG and JPMorgan Chase & Co. say bleak investor sentiment — often a contrarian indicator for a stock rally — is likely to drive equities higher into the year-end. Bank of America’s Hartnett sees the extent of depressed sentiment and better-than-feared macroeconomic data boosting the S&P 500 to 4,300 points, nearly five per cent above current levels. But he expects the index to fall back from that level, and remains “fundamentally and patiently bearish.”
Stocks face a selloff today after Labor Department data showed U.S. consumer prices increased 8.3 per cent in August from a year earlier. While that’s less than the 8.5 per cent jump last month, it was stronger than economists had anticipated and pushed traders to fully price in another 75-basis-point interest rate hike from the U.S. Federal Reserve at its meeting later this month. S&P 500 futures sank as much as 1.8 per cent after the data was released.
The outlook for corporate earnings is also deteriorating. A net 92 per cent of participants in the Bank of America survey now expect profits to decline in the next year, while the number of investors taking higher-than-normal risk has fallen to a record low.