The head of macro strategy at Wells Fargo says stock investors may be getting ahead of themselves, warning that other asset classes are not signaling that risk is gone.
In a new CNBC interview, Mike Schumacher says stocks are surging too fast, moving ahead of bonds and oil, while volatility begins to stabilize.
According to Schumacher, stock investors look flushed with optimism, but bonds and oil are not confirming that the risks are fading.
“Stocks have recouped, what, two-thirds of their losses, something like that. In bond land, it’s
maybe one-third. In oil, it’s one-third. Something’s not right there. And I would say in volatility space, it’s maybe three-quarters…
It seems to me people are sounding the all clear a little bit too quickly.”
The Wells Fargo strategist believes that equities may be pricing in good news too early, believing that prices for hedges and defensive positioning (insurance) should be more expensive as the risk hasn’t fully cleared. Schumacher suggests that stock investors should wait for more signals to develop, such as a clear Fed easing.
“So you think about the market backdrop, I would say it’s become a little bit too sanguine, a little bit too quickly. So it strikes me you ought to have higher prices for insurance, people waiting a little bit longer for the market to price some Fed easing, maybe a little bit less hiking by the ECB…”
Schumacher’s call comes as the fragile ceasefire in the Middle East gets tested after Israel launched new strikes against Lebanon. In response, Iran is reportedly moving to close off vessel movement in the Strait of Hormuz, where 20% of global oil supply passes through.
As of Wednesday’s close, the S&P 500 is trading at 6,782, up 7.40% from its low of 6,316.
Photo by Anne Nygård on Unsplash
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