Stocks have been plagued by bad news since mid-December.
Constant macroeconomic challenges have pushed markets lower resulting in the worst start to a year ever in the US.
All of these negative narratives, however, seem to be passing the markets by according to Jim Reid, a strategist at Deutsche Bank.
“While we have major concerns about financial markets over a 1-3 year basis we can’t help thinking some of the negative catalysts that markets have had in the last two months are being becalmed,” he wrote in a note to client Wednesday.
Here’s a rundown of the major issues that have been plaguing markets and why Reid thinks they’re behind us:
- Central bank instability: “First we had the ECB head-fake in December which is now likely to lead to strong action in 3 weeks time at the March meeting. Then we had a Fed hike that is not likely to be repeated anytime soon.”
- High yield debt: “Then we had the US HY fund closures which haven’t really been followed up by a series of closures.”
- China and its currency: “Over the New Year we had the renewed China FX depreciation which the PBoC’s Zhou indicated over the weekend is unlikely to be continued.”
- Plummeting oil prices and bank contagion: “Also oil has stabilised to some degree after a horrible start to the year and the banks have attempted to build defences against some of the more extreme attacks of the last two weeks.”
The biggest fear would be disappointing data from the major economies, but that doesn’t seem likely to Reid.
“However even here while data isn’t great (we never thought it would be) there’s no immediate signs that the US or European economy is nosediving,” he wrote.
This has led Reid to conclude that while it is “fragile,” the market seems to have found the bottom and should move up from here.
Stocks are up just over 3.5% over the past two days and futures just before the market open Wednesday are higher again.
If the market closes higher on Wednesday we’d cap the the first run of three consecutive up days in 2016.
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