Fed Pivot Hopes Look Overblown, Barclays and HSBC Strategists Warn

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Fed Pivot Hopes Look Overblown, Barclays and HSBC Strategists Warn

(Bloomberg) -- Inflation is too high at the moment for the Federal Reserve to start hinting at loosening financial conditions, making the stock market’s recent optimism “misplaced,” according to Barclays (LON: BARC ) Plc strategists.

The narrative for a pivot is “overblown,” strategists led by Emmanuel Cau wrote in a note. While global policy makers may be nearing peak hawkishness, a cut in Fed rates -- historically a pre-condition for equities to start a new bull market -- is still distant, they said.

The rally in equities seen in the past month, with global stocks rising 6%, has mainly been driven by renewed bets on Fed policy makers taking their foot off the gas after a series of jumbo interest-rate hikes. That now makes the risk-reward less attractive for investors, Barclays warned.

“Continuation of the rally is contingent on the Fed delivering on the pivot narrative,” said the Barclays strategists, recommending a defensive tilt in portfolios. 

Earnings growth forecasts still need to be reset and the full impact of monetary tightening has not been seen in the economy yet, they said. Full capitulation has not yet taken place and positioning remains cautious, so that remains a threat if economic pain materializes.

Echoing this view is Mark Haefele, UBS Global Wealth Management’s chief investment officer. He recommended clients hedge against near-term downside as recent economic data from the US points to stubbornly high inflation and a tight labor market, keeping pressure on the Fed.

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