July 7, 2022

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In a World Full of Risk, Stocks Look Like the Least-Bad Option

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(Bloomberg) — Whatever hardships are afflicting global stock investors, it’s worse in other markets, and that alone may be enough to keep the equity rebound going for now.

Stocks recovered in record time from the initial shock of the war in Ukraine and the havoc it’s wreaked on global commodity supplies. That followed their resistance to successive waves of the coronavirus pandemic since 2020. Now, they’re refusing to be undone by ominous portents in bond markets that a global recession is on the horizon.

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Part of the latest resilience is down to a hard-to-shake “buy the dip” pattern in trading. But the wall of worry that stocks have to climb right now is getting higher and higher as rampant inflation squeezes demand, economic growth slows and central banks look to finally end the era of excessively loose monetary policy.

While all that means corporate profits are poised to take a hit, stocks may still have a case, not least because the alternative options are scarce. 

“With cash and bonds offering negative real yields, investors are still inclined to buy the dips in global equities, despite deteriorating fundamentals,” Citigroup Inc. strategists led by Robert Buckland wrote in a note on Friday.

The rebound in March backs up that view. While the first quarter was the worst for global stocks since the outbreak of the pandemic, last month actually saw a recovery. In fact, a gauge of volatility in euro-area large caps shows that the war-induced slump is proving so far the shortest market rout this century.  

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Bloomberg News

2022-04-03 09:01:01

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