Markets Outlook Uncertain As Per Experts

March 23, 2020 8:03 am54 commentsViews: 324

The global markets have been on a roller-coaster for about a month or so now. Coronavirus has gotten investors worried about a potential recession in the economy as the businesses are on lockdown around the world due to the virus.

The markets are considered to be in a free-fall as of now, and despite the various actions taken up by the Feds to comfort the markets, the reds seem to be inevitable right now.

As per Marko Kolanovic, Quant Strategist at JPMorgan the markets will get better form now.

“I would be highly surprised when the market has sight of depression-like economic data over coming months and experiences the ongoing equity markets rout, if government bond yields did not make new lows, with the U.S. 10-year converging with bund yields deep into negative territory,” 

“Many aspects of this crisis have played out in-line with our prediction: severe liquidity disruptions, forced deleveraging of systematic strategies, record speed of equity declines, and failure of bonds to offset equity losses,” He added

He also said that the outbreak has severely impacted the markets but an all-out depression is highly unlikely as the effects have been as per our predictions.

“The stark underperformance of equities vs. bonds [month to date] leaves fixed-weight asset allocation portfolios about 4% underweight equities, which suggests they are likely to do a large rotation out of bonds and into equities to rebalance back to target weights,” he says.

He suggested that the risks posed by debt markets will be squared off by using bonds.

“Our model suggests these flows could drive about 4% outperformance for equities during the last week of this month (all else equal), but given the record low liquidity and compounding effect of short gamma, the impact could be up to 4x times larger.”

On the contrary, the global chief investment officer at Guggenheim Partners, Scott Minerd predicts that the worst for the market is not over yet. He said that the investors are still counting on some sectors which may indicate further deterioration.

“Since we haven’t seen capitulation yet, it would be premature to step in and buy aggressively at current levels, whether it is stocks or credit asset,”

“The turmoil we are seeing right now is the result of the unwinding of this leverage,” Minerd wrote.

In the same report, Minerd said that the US government and Feds need to take more actions then they propose to fix the financial markets severely impacted by the covid-19 virus.  

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