What a difference a month makes. From global equities hitting one low after another and market sentiment at rock bottom, to the return of bull markets.
Last month, stock indexes around the world were sitting at multi-year lows, hammered by high inflation and jumbo-sized interest rate hikes. Now, the Hang Seng Index in technical bull market territory and Germany’s DAX on the cusp of one. Others -- including the Dow Jones Industrial Average -- are getting close.
The sudden turnaround comes after several big and unexpected boosts to market sentiment, including softer US inflation data, and news in China of easing Covid restrictions and policy support for the property sector. Today’s news of thawing US-China relations has also helped.
“The moves since early October have caught many investors off guard,” said Mathieu Racheter, head of equity strategy at Julius Baer. “We have likely reached the lows of this bear market and think the year-end rally has legs for now.”
The positive newsflow, along with technical factors, suggests gains in some markets could extend, according to some. “The combination of underweight positioning and the short momentum unwind in China tech hints at yielding more tactical upside risk to mainland and Hong Kong markets,” said Stephen Innes, a managing partner at SPI Asset Management. “No one owned” China tech stocks just a week ago, he added.
As well as large-cap Chinese stocks, the turnaround has been most striking in the export-heavy German stock market -- which stands to benefit from China’s reopening -- and more traditional “old economy” stocks in the US like Caterpillar Inc. and Boeing Co. Big Tech stocks in the US are still lagging in a new regime of higher interest rates.
Still, some strategists are skeptical about how long equity gains can last, while the bull market milestone may be less relevant than usual given how volatile stocks have been this year.
“Recent gains are more symptomatic of a bear market rally rather than the start of a bull run,” said Susannah Streeter, an analyst at Hargreaves Lansdown. As well as risks persisting in China and a dimmer outlook in Europe, “fresh warnings from the Federal Reserve that the fight against inflation is still a hard slog” will keep investors cautious, she said.
Goldman Sachs Group Inc. strategists agree, warning that the rally in risk assets is “likely overdone” as risks of an extended rate-hike cycle remain.
Much of the moves may be down to positioning. Bank of America Corp.’s latest fund manager survey showed investors were most underweight equities and most overweight cash among asset allocations.