Risk Assets Still Have to Correct Lower

By Sam Boughedda

In a note to investors Wednesday, HSBC analyst Max Kettner said that they believe risk assets will still have to correct lower, and the firm remains firmly risk-off in its tactical asset allocation.

“The last few days have been brutal,” wrote Kettner. “Equities have sold off alongside credit, alongside commodities and alongside DM rates. The trigger is pretty clear and obvious: just like investors were obsessed with the idea of ‘transitory inflation’ last year, the obsession of 2022 so far has been ‘peak inflation’.”

He added that another, slightly more short-term obsession, has been the idea of a bear market rally in the coming weeks and months. “We’ve seen the number of stories and mentions of ‘bear market rally’ across financial news sources jump to all-time highs in recent weeks,” said the analyst.

“The very recent market obsession surrounding a ‘bear market rally’ now appears to be something of a fad.”

After outlining the firm’s thinking, Kettner stated there is a further weakness for risk assets in store over the summer months.

“What we’re also still missing is a proper downward adjustment in earnings expectations. In fact, cyclical earnings revisions have still been outpacing those of defensive sectors lately. In order for us to become more constructive on risk assets broadly, we need to see this reverse.”