, potentially leaving equities vulnerable to turbulence from a recent surge in bond yields and worries over China’s economy, investors said.
While bearish positioning was a “strong tailwind” for risk assets in the first half of 2023, that’s “not the case” in the second half, strategists at BofA Global Research wrote in a report earlier this week. “There was plenty of pessimism in the market earlier this year and that shift from pessimism to optimism was fuel for a rally,” said Willie Delwiche, strategist at Hi Mount Research. “We saw it quickly go from too much pessimism to excessive optimism, and now we are starting to see that roll over.”
Higher yields on Treasuries, which are seen as virtually risk free since they are backed by the U.S. government, can make stocks less appealing to investors, especially since equity valuations are high by historical standards. She expects stocks to remain volatile until companies start announcing third-quarter earnings in October. Should the market stabilize, investors will likely reallocate more cash to stocks later in the year, she said.