Stocks Look Like the Least-Bad Option in a World Full of Risk

A key measure of call volumes on 23 retail meme story is rising to levels reminiscent of previous speculative bubbles.

Another force is more technical and less influenced by worrying global headlines about Ukraine and commodities. Market players such as so-called risk parity funds or managed futures accounts have poured money into the market as they re-adjust their position amid the price gains and reduction in volatility.

“Systematic strategy covering of shorts and re-allocation of longs has meant a powerful buy impulse after the biblical de-leveraging experienced over the past six-month period,” said Charlie McElligott, managing director of cross-asset strategy at Nomura.

He estimates such players bought more than $61 billion in equity futures over the past month.

Curve Inversion

When it comes to the negative economic signals, strategists at JPMorgan Chase & Co. are among those reassuring that the recent inversion in the U.S. Treasury yield curve doesn’t spell imminent trouble. Even if the portents ultimately prove correct, it’s usually with a long lag, and Barclays Plc points out equities typically rise in the intervening period.

Among the reasons that investors discount the idea of a near-term slump are strong employment numbers in the U.S. There’s also consumers’ pandemic savings cushion and solid corporate balance sheets to fund buybacks.

Meanwhile, the energy-price shock after the invasion has eased. Europe’s reluctance to impose sanctions on Russia’s energy sector and a planned release from U.S. reserves, have helped alleviate the crunch, lowering prices back to around $100 a barrel.

For those convinced that the rebound has legs, the question is what to buy.

Philippe Jabre, founder of Jabre Captial Partners, says his multi-asset hedge fund is focusing on stocks with exposure to commodities, and financials.

UBS Global Wealth Management sees opportunities in energy, food, data and climate — sectors set to benefit from a renewed focus on security and stability.

For Goldman’s team, instead of playing specific styles such as growth versus value, investors must look for individual companies “that can innovate, disrupt, enable and adapt” and focus on margins.

Still, both say that for the broader market, the upside is limited. Bank of America Corp.’s team has even warned the recent rebound is a bear-market trap.

Barry Norris, who runs Argonaut Capital Partners, a hedge fund, agrees, saying the rally is lifting a lot of stocks “where fundamentals are deteriorating further and there’s no valuation support.”

“We are at the early stages of this bear market, we will see new lows over the summer,” he said.