(Bloomberg) -- US stocks may resume their slump as they have only just begun to price in a recession, according to Citigroup Inc.’s quant strategists.
Most Read from Bloomberg
Musk Revives $44 Billion Twitter Bid, Aiming to Avoid Trial
Loretta Lynn, Coal Miner's Daughter And Country Queen, Dies
Elon Musk Sets Off Uproar in Ukraine by Tweeting His ‘Peace’ Plan
Biden, Kishida Condemn North Korean Missile Launch Over Japan
Stock Shorts Fold in Best Two-Day Rally Since 2020: Markets Wrap
The market has turned “decidedly defensive again,” the strategists including Hong Li wrote in a note Tuesday. Recent synchronized moves suggest “equity investors are paying closer attention to the increased credit risk,” they wrote.
To make matters worse, the upcoming earnings season may do little to help sentiment given that stock correlations have reached the highest since the onset of the pandemic, according to the note. That suggests individual results may get drowned out by extreme moves in interest rates and credit markets.
The bearish view echoes similar calls from other investment banks, including Goldman Sachs Group Inc. and Bank of America Corp., concerned that the S&P 500 has yet to bottom out as a hawkish Federal Reserve pressures earnings and equity valuations. The S&P 500 has risen almost 6% over the past two days after dropping to its lowest since November 2020 on Friday.
While the benchmark has retreated as much as 25% from its record high in January, the slump was less than half of the 56% peak-to-trough plunge during the global financial crisis.
READ: Wall Street Sees S&P Falling Further After Bear-Market Bounce
Hong’s colleagues at Citi including Chris Montagu also struck a cautious tone for global equities in a separate note on Tuesday. The firm’s main recommendation for the near term is to stay defensive and favor quality stocks with low risk and large caps.
Among investment styles, Hong favors Price Momentum for its relatively low macro risk exposure and cheap valuation. The Oversold Strategy is viewed attractive as recent volatility provides opportunities to find dislocated stocks.
Oversold US stocks with buy ratings include Facebook owner Meta Platforms Inc., while crowded shorts include cable TV provider Charter Communications Inc., according to the US bank.
Most Read from Bloomberg Businessweek
Millions in Cryptocurrency Vanished as Agents Watched Helplessly
Pfizer Needs to Prove It’s Ready to Move On From Covid-19
Maine Lobster Union Points the Way for Organizing Gig Economy Workers
Big Pharma Is Chasing a $55 Billion Prize of Safer Blood Thinners
The Unstoppable Dollar Is Wreaking Havoc Everywhere But America
©2022 Bloomberg L.P.
