P 500, Wall Street’s benchmark index and the global proxy for risk assets, has been flirting with a new bull market for weeks.
Much has been written, of course, about how the rally has been driven by just a few overpriced mega-cap stocks, including Apple, Microsoft, Tesla and Nvidia. They have soared on hype about artificial intelligence that won’t turn into revenue and profits for some years.
But while the bears are in retreat, they’re not done yet. Two of Wall Street’s biggest bears, Bank of America’s Michael Hartnett and Morgan Stanley’s Mike Wilson, continue to say stocks can and will fallBut their biggest wildcard is central banks. The big risk to markets, Hartnett says, is not that the Fed is forced to cut rates and bearishly positioned investors are caught in a bullish pain trade.
Goldman Sachs and Capital Economics now expect the RBA will be forced to raise interest rates three more times to a peak of 4.85 per cent. Commonwealth Bank expects one more rate rise, but concedes a second is possible, and now doesn’t expect rate cuts until the March quarter of next year. It puts the odds of a recession at 50 per cent.