stock market economy

Buying into stock market dips has worked very well over the last decade, but UBS strategist Francois Trahan says he thinks it’s past its expiration date.
Trahan says buying the dips works when the economy is getting stronger, but that’s no longer the case.
While it’s always possible for stocks to bounce back from short-term losses, the tactic becomes less and less likely to pan out as economic data like Purchasing Managers’ Indexes weaken.
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As stock market volatility piles up, investors might be asking themselves if it’s a good time to buy into the market’s latest dips. But UBS is warning that the tactic might finally be past its expiration date.

Taking advantage of declines in stock prices has worked throughout the 10-year US bull market, and anyone who bought in the wake of the market’s plunge in December is probably thrilled with how it’s worked out. But UBS strategist Francois Trahan says that as signs of economic weakness mount, stocks become less likely to bounce back.

He says the state of the economy today is very different than it was in December, and the market has shifted into a “risk-aversion” phase.

“The S&P 500 has only been able to deliver positive returns once during “risk-aversion” across the nine (business) cycles we studied,” he writes in a note to clients. Those cycles date back 45 years.

Trahan says two especially important areas have gotten worse since the market’s low point on December 24: Indicators of future economic health, like purchasing managers’ indexes, are fading and might soon show that parts of the economy are shrinking; and company earnings growth is also dwindling.

Both of those changes can point to trouble ahead and make recoveries in stock prices less likely.

“Today’s backdrop with PMIs in the low 50s and …read more

Source:: Business Insider


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