Wednesday, 7 August 2019

US stocks rebound but more weakness and volatility expected

Markets were mixed on Tuesday.

The S&P 500 rebounded 1.3 percent after the previous day's tumble. However, the STOXX Europe 600 fell 0.5 percent and the Nikkei 225 fell 0.7 percent.

Despite the rebound in US stocks on Tuesday, some analysts think that there is room for markets to fall again.

JP Morgan head of global and European equity Mislav Matejka wrote in a note on Monday that given the escalating trade war between the US and China as well as the time of the year, “markets could experience a few weeks worth of a pullback”.

However, he suggested that “one should use the prospective weakness as an opportunity to add” as “global equities will advance further before the next U.S. recession strikes”.

In contrast, Nomura macro and quant strategist Masanari Takada said in a note on Tuesday that “any near-term rally...would be best treated as an opportunity to sell in preparation for the second wave of volatility that we expect will arrive in late August or early September”.

Takada added that “the second wave may well hit harder than the first” and that “it would be a mistake to dismiss the possibility of a Lehman-like shock as a mere tail risk”.

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