While stalwart equity bear Michael Wilson of Morgan Stanley predicts that sentiment will deteriorate further if investors begin to “question the sustainability of the economic resiliency,” David Kostin of Goldman Sachs Group Inc. believes there is still room for investors to increase exposure if the economy continues to be headed for a soft landing.
After increasing since December, Goldman’s stock sentiment indicator, which tracks nine positioning parameters such as hedge fund exposure, foreign investor demand, and fund flows, fell last week. Kostin stated in a note that he anticipates the dip to be “short-lived” and that retail traders, hedge funds, and mutual funds would all raise positive bets if the “market environment continues to improve.”
Wilson, on the other hand, claimed that stock market investors had recently grown overconfident regarding a soft landing. According to him, Corporate America’s capacity to raise prices has been constrained by decreasing inflation, and if consumer demand wanes during the year, things could become worse.
Furthermore, “it’s fair to say that we just don’t know the answer to the question, yet, in terms of a soft landing outcome and an associated rebound in pricing power,” wrote Wilson in a note. If fundamentals worsen as expected and the market doesn’t, “we believe the ‘risk off’ complexion of markets will remain with us possibly well into the fall/winter.”
Wilson foresaw the stock market decline accurately the previous year, and he has maintained his pessimistic outlook this year despite the market’s recovery.
Read more: Tests Await Bruised Stocks This Week, From Nvidia to Powell
The longest losing streak for US stocks since February occurred on Friday as signs of economic resiliency increased bets that the Federal Reserve would maintain higher interest rates for longer. Jerome Powell, the chair of the Kansas City Fed, will speak at the annual conference in Jackson Hole later this week, providing the next indication of the central bank’s policy outlook.
Max Kettner, a strategist for HSBC Holdings Plc, added that given the dangers of a widespread selloff due to bond issuance and the Jackson Hole symposium, it is not yet appropriate to expand exposure to risk assets.
In a message, Kettner stated, “We wouldn’t jump right back in just yet,” adding that he would exploit any ensuing drops to buy the dip, particularly in US markets.
(The eighth and ninth paragraphs have been updated with remarks from Max Kettner of HSBC.)
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