Investors should avoid chasing the recent rally in stocks and bonds amid the current volatile economy, according to the chief investment officer of Swiss asset management firm Prime Partners.
Francois Savary said it was difficult to get a clear economic vision due to the specifics of the current investment cycle, such as the Covid-19 recovery and the Ukraine war.
“One of the key factors supporting the upside momentum, which was the strong bond market in July, has disappeared to a certain extent,” he told CNBC’s “Street Signs Europe” on Monday.
Also, while the second-quarter earnings season has been strong so far, a key issue is how much analysts will revise their third-quarter earnings forecasts. “So we think two factors that could support a further rally in the equity market are not clear there,” Savary said.
Therefore, he thinks investors should “absolutely not” chase the stock rally that has been going on since mid-July. The S&P 500 up nearly 13% from its July low to close at 4,140 on Monday, but still down since the start of the year.
Regarding bonds, Savary said, “we all know how hard it is to monetize bonds. I’m not going to chase the bond bull run we’ve had over the past two months.”
High-yield corporate, government and bond funds saw big cash flow last month. The US 10-year Treasury Yields – which move against the price – slipped to trade around 2.76% the following Tuesday topped 3.48% in mid-June.
Investors in global markets are navigating a spiral of inflationary pressures, recession risks and central bank tightening cycles, with even troublemakers like Berkshire Hathaway and SoftBank announced an investment loss in the June quarter.
“It was a very tough market environment,” Savary told CNBC. “You need some hedge funds [and] some sort of correlation strategy in your portfolio. “
Keeping some investments in stocks will provide some protection from inflation, he said, but investors will need to be tactical and keep an eye on the latest economic data.
Meanwhile, cash, Savary says, is useful for providing flexibility.
“It’s exciting to have some cash to check because anything can happen in an environment like this. We can have a recession, but you can also get slow but viable growth. important in the next 12 months,” he said.
For now, Savary said the market has priced in during a recession. “But the numbers don’t tell you there’s a recession, so we need to be nimble and check what’s going on week by week and month by month, and we’ll have more visibility at the start of the season. collection, in the United States in particular.”
U.S. gross domestic product fell in the first two quarters of the year, meeting a common definition of a recession, although NBER defines it different and The White House affirms The United States is currently not in a recession.
Investors will look to US inflation data on Wednesday for more clues on the state of the world’s largest economy. It comes later work report for the previous month showed unexpected strength and raised expectations for a 75 basis point rate hike in September.