The strong start to the year for equities isn’t contrary to the bond markets pricing for a recession, as stocks normally peak when economic slowdowns are imminent, according to Gerard Minack, a former Morgan Stanley global strategist.
(Bloomberg) — The strong start to the year for equities isn’t contrary to the bond markets pricing for a recession, as stocks normally peak when economic slowdowns are imminent, according to Gerard Minack, a former Morgan Stanley global strategist.
A US recession is likely this year, but equity investors are focusing on the expectations for lower interest rates, Minack, founder of Minack Advisers in Sydney, said at the Australian Financial Review Alpha Live 2023 event on Thursday.
“It would be completely in line with history for equities to be whistling past the graveyard right up to the September quarter,” if you are thinking a US recession is going to start in the December quarter, he said.
Optimism the Federal Reserve will pivot from its most aggressive interest-rate hiking cycle in four decades – a headwind for equities and bonds last year – pushed the S&P 500 Index to a 7% gain in the first quarter, its best start to a year since 2019.
Those gains came even as deepening yield curve inversions and flourishing bets on rapid central bank rate cuts showed bond investors are becoming more and more certain a sharp economic slowdown is all but certain.
“Bond markets are much better at picking recessions than equities, but equities are better at picking recoveries than bonds,” Minack said.
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