Markets across the globe have rebounded in the past month from their lows as inflation has started to cool off a bit. The Indian benchmark index, Nifty50, and the Dow Jones on Wall Street are both up 10 percent in this period. However, are the bulls out of the woods yet? Gary Schlossberg, Global Strategist at Wells Fargo Investment Institute, does not think so as he sees a possibility of a recession sometime during the second half of the year.
While speaking to CNBC-TV18, he said, “It is a very impressive rally but we are still calling it a bear market rally.”
He believes the earnings outlook and the earnings performance will be tested during the second half of the year.
“The market has gone further higher than what we would have anticipated but it still has to be tested,” he said.
According to Schlossberg, the US Fed will continue to raise interest rates right through the end of the year including an outsized increase in September of either 50 or 75 basis points (bps).
“We are not out of the woods yet and we think it is more than likely that the market will respond to that at some point,” he mentioned.
Take on India
Schlossberg remains constructive on domestic-oriented companies in India.
“The domestic economy seems to be holding up well, getting support from the drop in oil prices, we are seeing exports holding up reasonably well too. We see opportunities in the domestic market in India based on the tailwind from economic growth,” he explained.
According to him, the employment situation will hold up better than it normally does during a recession.
“We are looking for more of a moderate recession, a bit more than mild given the fact that real incomes are under a lot of pressure right now and the housing market here and the ripple effect it has is already in the early stages of the slowdown. So it is going to be difficult for the markets to discount and we do think that the recession, which could last through the better part of the first half of the year, will prompt some recovery in the stock market,” he said.
For the full interview, watch the accompanying video