Reminder: a gridlock rally doesn’t mean an end to the bear market
- Gridlock or divided government is historically a positive for markets.
- Wells Fargo expert reveals why she's still cautious on the equities market.
- The benchmark S&P 500 index is currently down over 20% for the year.
A “gridlock rally” and “seasonality” has been the name of the game these past few days, but none of it is enough to make equities an attractive investment at this point in time, says Tracie McMillion of Wells Fargo Investment Institute.
U.S. economy is headed for a recession
Historically, divided government is a positive for markets, but this time could be a bit different.
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That’s because a gridlock makes it all the more difficult to pass a stimulus and help the economy, which, in turn, puts the Federal Reserve in the driver’s seat. And the central bank has already indicated that it’s “very premature” to consider pausing just yet (find out more).
Chair Jerome Powell now expects the terminal rate to be higher than previously anticipated, which means a bigger possibility of a recession.
That’s why McMillion remains dovish on the S&P 500.
McMillion is taking a broader view
She’s not convinced that an end to the bear market is in sight just yet and, therefore, doesn’t expect any near-term optimism to be sustainable. This morning on CNBC’s “Squawk on the Street”, McMillion said:
We’re still in a bear market and we still have a recession to come. The valuations are also unattractive at this point. With the risk-free rate as high as it is, we continue to be cautious investing in the equity markets.
Earlier this week, legendary investor Sam Zell also picked cash over stocks amidst the current macro environment that Invezz reported here.
The benchmark index is down more than 20% year-to-date at writing.