Equity markets are not looking healthy and are reminiscent of the period leading up to the global financial crash of 2008, one investment manager told CNBC Wednesday.
According to Peter Toogood, the chief investment officer at financial advisory firm Embark Group, the fact that many investors are still buying stocks after last week’s sell-off is a worrying sign.
When asked if he would be buying anything at this point, he said: “Not really, to be honest, not a lot. It’s going to be one of those markets where you’re going to, I suspect, get a bear market and it’s going to be the reality of how far does it go down before (next Federal Reserve Chair Jerome) Powell and co reverse QT (quantitative tightening) and start saying OK we need to be the supportive mechanism again.”
Global markets traded higher with U.S. stocks posting a three-day winning streak Tuesday, following the market correction seen last week. This showed that money managers remain confident on the equity market despite recent volatility. Stocks have benefited from years of ultra-loose monetary policy across the world.
However, given the improvements in the global economy, central banks have begun reversing their accommodative programs, with the Fed expected to increase interest rates at least three times this year. Higher interest rates affect companies’ borrowing costs and can ultimately make their shares less attractive to investors.
“That is the test of where you’d think a bear market is coming; I still do, just on valuation alone. I think this market is nuts.”
Against an ever-more-volatile geopolitical backdrop and neck-deep in a rising morass of debt, the cracks and fissures in markets are starting to show. Whether we have one last gasp to the stock market upside left or not, the clock is ticking on when we can no longer kick the can down the road.
Geopolitical risk remains considerable. Bridgewater Associates’ Developed World Populism index surged to its highest point since the 1930s in 2017, factoring in populist movements in the US, the United Kingdom, Spain, France and Italy. So long as populism lingers as a political threat, the risk of reactionary protectionist trade policies and higher capital controls will remain heightened, and this could derail economic growth.