As we approach the end of April, the strong run in stocks has a number of risks ahead that make further gains unlikely. Here is a list of four major concerns for global stocks.
Firstly, the major indices tend to have a weak summer. This is a time when flows into equity funds tend to dry up and major indices tend to move lower or sideways from the end of May until the end of September/October. You may have heard the phrase ‘sell in May, and go away’. Well, that’s what it means in practical terms – lower indices. See here for more detail on that.
Secondly, the Federal Reserve is meeting next week on Wednesday and it is expected to hike rates by 25bps. The Fed has always said that there will be no rate cuts this year, so if it repeats that mantra again then markets may start to take notice. Remember, STIR markets had been pricing in 2 rate cuts this year, so a hawkish Fed could send stocks lower on the worries of even higher rates.
Thirdly, more banking woes have emerged with the First Republic Bank in the US this week. The concern over depositors leaving US banks is a real one and you can read more on that here. The more banking strain there is, the more likely the markets fear a 2008/2009 type crisis, so the risks for sudden panic selling are very real.
Fourthly, stretched buyers may run out of steam. Goldman Sachs’ Scott Rubner is reported on Bloomberg saying systematic money managers have added more than $170 billion worth of global shares in the past month which puts the funds’ exposure at the highest since 2022. Rubner’s take is that the ‘buyers are out of ammo’ and he is tactically bearish.