Our contrarian call is we’re still bullish equities: BMO's Belski
Stocks closed higher at the start of a week that’s likely to be marked by unnerving market gyrations, with the Federal Reserve expected to deliver its biggest rate hike in two decades.
Dip buyers emerged after the worst month for the S&P 500 since the onset of the pandemic, sending the benchmark gauge up after a slide that reached 1.7 per cent earlier Monday. The technology-heavy Nasdaq 100 outperformed amid a rally in giants like Microsoft Corp. and Tesla Inc. Treasury 10-year yields traded near 3 per cent, climbing alongside the dollar.
The negativity in the U.S. stock market has become so overwhelming that a rebound may not be far off, said JPMorgan Chase & Co.’s strategists led by Marko Kolanovic. They pointed to the closely watched American Association of Individual Investors survey hitting the most-bearish mark since early March 2009. That month marked the S&P 500’s bottom from the global financial crisis.
Fears of an economic slowdown, persistently high inflation and an increasingly aggressive tightening rhetoric by Fed officials have weighed on risk appetite. While many strategists don’t exclude a respite after the recent stock selloff, there’s also a degree of skepticism that a rally would last given the current set of risks.
“As we turn the calendar to May, we may see a short-term oversold bounce, however, we still have several reasons for concern,” wrote JC O’Hara, chief market technician at MKM Partners. “We believe our longer-term equity indicators are not yet oversold enough to have a high conviction ‘buy’ call. We also believe managers have started to reprice stocks using recession like multiples. If that is the case, we are still overvalued.”
- “On the positive side, the market is currently so oversold, any good news could lead to a vicious bear-market rally,” wrote Morgan Stanley’s chief U.S. equity strategist Michael Wilson. “We can’t rule anything out in the short term but we want to make it clear this bear market is far from completed, in our view.”
- “Sentiment measures have reached extremes, while the market has historically traded higher after a four-week losing streak. However, given the current technical backdrop of lower lows and lower highs, an advance at this juncture should be considered a countertrend rally and not suggestive of a bottom being set,” wrote Craig W. Johnson, chief market technician at Piper Sandler.
- “An appointment for a root canal has sounded better than having to watch this stock market lately,” wrote strategists at Bespoke Investment Group. “Just when you think things can’t get any worse in this market, they do, as every bounce has been quickly repudiated with stocks grinding down to new lows for the year.”
The shift away from easy money is poised to accelerate as a pandemic bond-buying blitz by central banks swings into reverse, threatening another shock to the global economy. Analysts project the Fed will boost rates by 50 basis points Wednesday to tackle the hottest inflation in four decades, and begin trimming its balance sheet at a maximum pace of US$95 billion a month -- a quicker shift than most envisaged at the start of 2022.
Elsewhere, at least a dozen other central banks are due to deliver policy decisions in the coming week, with multiple rate hikes expected. They may vary in size from 15 basis points anticipated by economists for Australia, to a quarter-point in the U.K., to whole percentage points in Brazil and Poland.
Some corporate highlights:
- Tesla needs more time to file a regular disclosure ahead of its annual shareholders’ meeting, pushing back a potential detailing of plans for issuing new shares and a possible stock split.
- Pfizer Inc.’s Paxlovid pill for treating COVID-19 failed to show benefit as a preventive therapy in a trial.
- Goldman Sachs Group Inc.’s trading division clocked more than US$100 million in revenue on 32 separate days, offering another glimpse into an extraordinary run through markets disrupted by war and unpredictable central bank actions.
Key events this week:
- Reserve Bank of Australia rate decision, Tuesday
- U.S. factory orders, durable goods, Tuesday
- Fed rate decision, briefing with Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Bank of England rate decision and briefing, Thursday
- OPEC+ convenes virtually for a regular meeting, Thursday
- U.S. April jobs report, Friday
Some of the main moves in markets:
- The S&P 500 rose 0.6 per cent as of 4 p.m. New York time
- The Nasdaq 100 rose 1.7 per cent
- The Dow Jones Industrial Average rose 0.3 per cent
- The MSCI World index was little changed
- The Bloomberg Dollar Spot Index rose 0.4 per cent
- The euro fell 0.4 per cent to US$1.0504
- The British pound fell 0.7 per cent to US$1.2489
- The Japanese yen fell 0.4 per cent to 130.18 per dollar
- The yield on 10-year Treasuries advanced five basis points to 2.98 per cent
- Germany’s 10-year yield advanced three basis points to 0.97 per cent
- West Texas Intermediate crude rose 0.8 per cent to US$105.48 a barrel
- Gold futures fell 2.6 per cent to US$1,862 an ounce