David Bianco, chief investment officer, Americas, for DWS, said in a note the correction is “largely justified.”
Taking the famous “abnormally good or abnormally bad conditions do not last forever” from Benjamin Graham, Bianco points out the MSCI World in mid-July was up 15% after rising 22% last year.
“Being aware that long-term, global stocks on average return slightly more than 7% per annum, it does sound like ‘abnormally good conditions,’ doesn’t it,” he said. “Markets had just been priced a bit too much for perfection.”
“From a market perspective, it remains a fine line between economic indicators that are weak enough to justify rate cuts, but at the same time do not weaken too much, thus pointing at a recession,” he added, also mentioning rising geopolitical tensions as well as seasonality. “We would not be surprised if markets were to remain choppy for the weeks to come, without however expecting a bear market.”
