Fears of recession and inflation confuse investors: Strategist

Market participants grapple with the risks of persistently high inflation and a bleak economic outlook, which strategists say stirs up a potent mix of confusion and pessimism.

It comes as investors monitor a fresh batch of US economic data that will provide more clues about whether inflation is declining, and whether the Federal Reserve is likely to announce another rate hike at its next meeting in early May. .

Investor confusion seemed to emerge as a big theme in financial markets, said Bob Parker, senior advisor at the International Capital Markets Association.

“If you look at the surveys of investor situation and investor thinking, there is a great deal of confusion right now,” Parker told CNBC’s “Squawk Box Europe” on Wednesday.

“Is inflation going down quickly or not? How slow is the US economy and for that matter, the European economy? What are the risks of recession?” Parker said.

“And so, given those uncertainties, I think investors are underestimating risk right now and booking, frankly, what a decent year-to-date dividend would be.”

Many investors have been cashing in on the “good returns” they’ve seen year-to-date in both the US and Europe, Parker said, with “first-quarter earnings obviously going to be very negative.”

Looking ahead, Parker said the theme for May and June is likely to be an alternation of year-to-date underperforming stocks, “which are in the value, defensive, profit-taking sectors in the cyclical and growth sectors.”

Value stocks are those that are believed to be trading undervalued, while defensive stocks usually provide consistent dividends regardless of the state of the stock market.

Cyclical stocks, thought of as the opposite of defensive stocks, generally follow economic cycles. Growth stocks indicate companies that are expected to outperform the overall market.

Concerns about the next recession seem to be growing, while many economists have predicted a period of deflation in 2023.

Earlier this month, the International Monetary Fund published its weakest medium-term global growth forecast for more than 30 years.

The Washington, D.C.-based institution said that global growth is likely to be around 3%, which means that the global economy is not on track to return in the medium term to pre-coronavirus rates.

Since then, Gita Gopinath, the IMF’s first deputy managing director, has said the risks of a so-called “hard landing” remain, even as the US economy can avoid a recession.

When asked if the downward trend in oil prices can be interpreted as a bleak economic gauge, Giles Keating, director of Bitcoin Suisse, told CNBC’s “Squawk Box Europe” on Thursday, “I think there is general pessimism right now about where the global economy is. Going.”

He added, “I don’t think it’s that bad. There’s a lot of concern about a problem with one bank now – and that’s not the same problem in the banking sector, so I think oil is being overly pessimistic here.”

His comments signaled another sharp drop in First Republic shares. Investors were viewing the troubled San Francisco-based lender as a risky bank after last month’s collapse of Silicon Valley Bank, which had a similar financial profile.

— CNBC’s Alex Haring, Hakyung Kim, and Jessie Pound contributed to this report.