It is now 'sell into strength' not 'buy the dip'
October 11, 2018

With global equities declining to an eight-month low this morning, following sharp falls for US tech stocks, investors weigh in on what triggered the sell-off and discuss the direction of markets from here.

Witold Bahrke, Senior Macro Strategist at Nordea Asset Management, says: "Some market pundits claim there is no real 'new news', but in our view, we have reached a critical mass on negative news, which has triggered this sell-off. Bond yields spiking adding to monetary headwinds, global growth indicators (PMIs) falling and lastly political risk rising in the shape of the ongoing trade war, as well as Italy, are keeping investors awake at night. Each single issue is not new, but adding it all up you get a toxic cocktail for markets. Altogether, the stock sell-off supports our view the market narrative is changing from 'buy the dip' to 'sell into strength'."

Fabrizio Quirighetti, Co-Head of multi-asset at SYZ Asset Management, says: "We believe the recent correction has been triggered by the increase in US real rates, rather than inflation concerns, as was the case at end of January and the beginning of February. The realization after the US Federal Reserve (Fed)'s meeting and Jerome Powell's comments is that the Fed will continue to hike in 2019, possibly at the same pace as this year. In other words, Powell signalled the Fed is now committed to bringing rates to a ‘neutral level' and potentially beyond, as its two objectives are fulfilled."

"As the Fed is draining liquidity from markets, the few sectors which were quite resilient so far, such as US small caps or US technology stocks, have suffered the most since the beginning of the month. We think it's a ‘healthy' rebalancing correction, but we are somewhat concerned if this liquidity squeeze continues, it may severely affect credit, with ripple effects on the real economy and more negative impacts on broad financial markets."

Chris Alderson, Head of international equity at T Rowe Price, adds: "We are heading into the hardest part of the cycle. It's ten years since the collapse of Lehman Brothers and the punch bowl is finally being taken away. This year was probably as good as it is going to get for US earnings growth. Next year will probably remain a reasonable environment for risk assets, but not as good as it has been for the past few years." 

Joe Amato, Chief Investment Officer, equities at Neuberger Berman, comments: "Equity markets tend not to go up in the straight line we have gotten used to since mid-2016. They do not need a recession as an excuse to correct, either – tightening conditions can push stock prices down even when earnings are sustained. Even if the current volatility turns out to be another false alarm, we still think it makes sense to use risk-market rallies over the coming months to adopt a more defensive stance."





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With global equities declining to an eight-month low this morning, following sharp falls for US tech stocks, investors weigh in on what triggered the sell-off and discuss the direction of markets from here.

Witold Bahrke, Senior Macro Strategist at Nordea Asset Management, says: "Some market pundits claim there is no real 'new news', but in our view, we have reached a critical mass on negative news, which has triggered this sell-off. Bond yields spiking adding to monetary headwinds, global growth indicators (PMIs) falling and lastly political risk rising in the shape of the ongoing trade war, as well as Italy, are keeping investors awake at night. Each single issue is not new, but adding it all up you get a toxic cocktail for markets. Altogether, the stock sell-off supports our view the market narrative is changing from 'buy the dip' to 'sell into strength'."

Fabrizio Quirighetti, Co-Head of multi-asset at SYZ Asset Management, says: "We believe the recent correction has been triggered by the increase in US real rates, rather than inflation concerns, as was the case at end of January and the beginning of February. The realization after the US Federal Reserve (Fed)'s meeting and Jerome Powell's comments is that the Fed will continue to hike in 2019, possibly at the same pace as this year. In other words, Powell signalled the Fed is now committed to bringing rates to a ‘neutral level' and potentially beyond, as its two objectives are fulfilled."

"As the Fed is draining liquidity from markets, the few sectors which were quite resilient so far, such as US small caps or US technology stocks, have suffered the most since the beginning of the month. We think it's a ‘healthy' rebalancing correction, but we are somewhat concerned if this liquidity squeeze continues, it may severely affect credit, with ripple effects on the real economy and more negative impacts on broad financial markets."

Chris Alderson, Head of international equity at T Rowe Price, adds: "We are heading into the hardest part of the cycle. It's ten years since the collapse of Lehman Brothers and the punch bowl is finally being taken away. This year was probably as good as it is going to get for US earnings growth. Next year will probably remain a reasonable environment for risk assets, but not as good as it has been for the past few years." 

Joe Amato, Chief Investment Officer, equities at Neuberger Berman, comments: "Equity markets tend not to go up in the straight line we have gotten used to since mid-2016. They do not need a recession as an excuse to correct, either – tightening conditions can push stock prices down even when earnings are sustained. Even if the current volatility turns out to be another false alarm, we still think it makes sense to use risk-market rallies over the coming months to adopt a more defensive stance."



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