Investors are keeping a wary eye on oil after weekend attacks on Saudi Arabia crude facilities triggered the largest one-day gain for the commodity since 2008, and plenty of risk-off action all over.
The cautious tone looks here to stay as attention turns to the two-day Federal Reserve meeting starting on Tuesday.
Some are doubting we’ll even see that much anticipated interest-rate cut (see chart of the day).
Not that it matters, says our call of the day, from Binky Chadha, Deutsche Bank’s chief global strategist and head of asset allocation, in an interview with MarketWatch.
He warns a U.S. recession is on the doorstep, the Fed can’t help and the S&P 500SPX, +0.03% is ignoring all of the warning signs.
“We are cautious on stocks. We would argue you want to be defensively positioned [and] we would argue that the U.S. equity market has run way, way ahead of growth,” says Chadha.
The S&P, he notes, tends to be “very strongly correlated” with indicators of cyclical growth like the Institute for Supply Management survey (ISM), which fell into contraction territory last month. It suggests the index should be at 2,600, not at current levels just below 3,000, which appear to price in a “good solid rebound” for the ISM.
Elsewhere, he says annual U.S. jobs growth slowed from 2.5% in the middle of last year to 1.3% last month, marking the weakest expansion in 10 years, and nearing “stall-speed” for the economy.