Equities: High bull trap risk – Nordea Markets
Analysts at Nordea Markets suggest that the equity markets have reached their 15-20% drawdown target in late 2018 with deteriorating liquidity and macro indicators and they are seeing a higher probability for an earnings recession and stick to a defensive view.
“After a vicious December, global equity markets reached our initial target of a 15-20% drawdown from the peak, a drop in line with the 2015-16 experience. On the macro side, however, we find that the comparison with 2015-16 no longer fully holds true.”
“There are several negative differences compared with that period, which could mean a more negative stock market scenario this time. Currently, we are even more worried about those differences; so, we are not yet willing to neutralise our underweight equity and corporate bond positions.”
“We admit that the call is much harder to make now that markets have temporarily corrected to forward P/E levels that could be viewed as fair on a longer time horizon. However, profit-neutral multiples, such as EV/sales, are still much higher than at the market trough in 2016, and the risk of an earnings recession is, in our view, greater now.”