Markets: How to Break the 20-Year Worst Scenario By

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By Laura Sanchez – Judging by the openness of European markets, equities seem to have shifted gears from the last eighth: + 1.1%, + 0.9%. However, investors do not lose sight of the prospects for a recession, the inflationary environment and the reaction of central banks.

“The major US equity indices closed a series of not-so-positive milestones last week,” analysts at Link Securities wrote in a note. “The closed Friday down for the eighth consecutive week, which had not happened since 1932, while the S&P 500 recorded the seventh consecutive week in negative, which had not happened since March 2001 (.com bubble) with this one. last entered bearish market briefly “.

“After seven weeks of continuous declines in the North American equity markets, we are facing the worst streak in the last 20 years, which led to the losing 18% in the first 97 sessions of 2022, which is the fourth worst start to the year in the whole story, “says Javier Molina, spokesperson for eToro in Spain.

“If we keep pulling statistics from 1928 for the S&P, there have been bear markets every 4 years. Similarly, the Nasdaq loses 31% from the highs of November 2021, a decline already greater than that experienced during the Covid-19 crisis ”, adds the broker’s expert.

“All this has led us to face an oversold market, with very negative sentiment, where the flows continue to mark this risk out trend and the attention is now focused on the minutes of the FOMC next Wednesday. If more members are predisposed to increases greater than those discounted by the markets, in addition to the impact on economic growth and the risk of recession, there would be more fears, “says Molina.

“It is not excluded that, after this long period of decline, the main US indices will attempt a rebound of a certain intensity, taking advantage of the high levels of overselling that many stocks present and the general negative sentiment of investors, which historically has almost always worked as a good indicator to the contrary, ”highlighting from Link Securities.

“If this reaction were to occur on Wall Street, it would also drag European equity markets higher, which, in general, have performed a little better than American ones in recent weeks,” add these experts. “However, as we pointed out last week, we believe such a rebound could be a good opportunity to position our risk at the desired level by pivoting our portfolios towards more defensive positions,” they conclude.

“For this week we continue to maintain a cautious view of the markets. The current combination of: (i) weak macro (low GDP and high inflation), (ii) moderate EPS growth and (iii) rate hike scenario in Europe and the US, make our strategy focus on prudence with the aim of protecting assets rather than achieving profitability. Therefore, we maintain a sectoral exposure to the equity market that is highly concentrated in some sectors (and defensive in the current context): raw materials (), infrastructure and defense “, comment by Bankinter (BME :).

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