Recession and inflation unknowns prey on participants' minds
Investor confusion is emerging as a major topic in the financial markets, according to Bob Parker, senior advisor at the International Capital Markets Association.
Confusion and despair have become prevalent among market participants due to the threat of rising inflation and the gloomy economic outlook. Investors are keeping an eye on American economic data to see if inflation is slowing down and if the Federal Reserve will likely boost interest rates at its next meeting in early May.
In an interview with CNBC’s “Squawk Box Europe”, Parker said, “If you look at the surveys of investor positioning and investor thinking, there is a huge amount of confusion at the moment. Is inflation coming down rapidly or not? To what extent is the U.S. economy and for that matter, the European economy slowing down? And what are the recession risks?”
“And so, given those uncertainties, I think investors are reducing risk at the moment and booking, frankly, what are decent profits year-to-date.”
According to Parker, investors were profit-taking on the "good returns" experienced year-to-date in both the U.S. and Europe, as first quarter earnings are anticipated to be negative. He projected a rotation into lagging equities in May and June, with value and defensive sectors, while taking profits on cyclical and growth sectors.
Value stocks include those trading below their real worth, whereas defensive stocks give dependable earnings. Cyclical stocks conform to economic cycles, whereas growth stocks are projected to outperform the market.
Fears of a recession are mounting, with many experts anticipating a decline in 2023. The International Monetary Fund issued its weakest global growth estimates for over 30 years, with global progression expected to be around 3%. This indicates the world economy is not on pace to recover to the rates before the start of the coronavirus pandemic.
Gita Gopinath, the IMF’s first deputy managing director, has subsequently indicated that the dangers of a so-called “hard landing” persist, even as the U.S. economy might avoid a recession.
Giles Keating, director at Bitcoin Suisse, told CNBC’s “Squawk Box Europe” on Thursday, “I think there is a general pessimism now about where the world economy is going,” replying to whether a downward trend in oil prices might be read as a dismal economic gauge.
Alluding to another dramatic decline in First Republic’s shares, he added, “I don’t think things are that bad. There is too much worry about a problem with one bank now — and that’s not the same as a problem across the banking sector so I think oil is overdoing the pessimism here.”
The struggling San Francisco-based lender was considered by investors as a dangerous bank after last month’s breakdown of Silicon Valley Bank, which had a comparable financial profile.
