Jackson Hole: Return outlook for equities unattractive after Jackson Hole: Credit Suisse

After hearing harsh words from central banks at last week’s Jackson Hole Economic Policy Symposium, Credit Suisse has reduced its equity allocation to underweight.

“Markets had factored in too much hope and not enough economic realities. Thus, the next few months are likely to become difficult for investors, and I think it is time to be prudent and reduce risk,” Credit Suisse’s Global CIO Michael Strobaek said in a note to investors.

The global investment bank and financial services firm has reduced equity allocation to underweight. “We also now believe the absolute return outlook for equities is outright unattractive in the coming months,” he said, adding that Powell’s remarks confirm his conviction that although US inflation may have peaked, investors should not speculate on a quick return of the “Fed put,” nor that the Fed will make a “dovish pivot” anytime soon.

The change in tone of central bankers at Jackson Hole has spooked markets worldwide. Sensex closed 770 points, or 1.3 per cent, lower on Thursday while the US stocks ended lower for the fourth straight day yesterday.

“It seems clear that Jerome Powell’s Jackson Hole speech is a confirmation that the Fed will continue to hike rates, and keep them high until inflation is close to target,” Credit Suisse said.

So should you throw in the towel when markets are turbulent?

Strobaek says throwing the towel would most likely also mean missing the recovery that will undoubtedly follow a correction. “Investors should not lose faith. In fact, they would be ill advised to exit markets completely given high levels of inflation,” he said.

One piece of good news in all of this is that as central banks are front loading their rate hikes, the painful reset of interest rate hikes will probably be relatively short compared to historic rate hiking cycles, he wrote in the note.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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