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Berenberg analysts are firmly in the “sell the rally” rather than “buy the dip” camp.
In a note on Friday, the analysts explained their reasoning, comparing the post-global financial crisis (GFC) era to now.
“Financial markets in the post-global financial crisis (GFC) era were significantly influenced by central bank policy. Abundant liquidity backstopped risk markets during distress periods and was a key determinant in driving upside returns to financial assets. This was even more so the case in 2020-2021, when monetary and fiscal authorities combined to provide record levels of policy support for the real economy and financial markets,” the Berenberg strategists stated. “Central banks are now tightening financial conditions and withdrawing liquidity – the punch bowl has been removed.”
They added that their “baton pass” thesis suggests that, in the absence of ongoing liquidity injections from central banks, equity markets need to find another support to make gains, which they believe is fundamentals (ie earnings). However, both liquidity and earnings are currently missing in action, they stated.
“Central banks’ quantitative easing has been replaced with quantitative tightening. We also expect significant pressure on corporate earnings over the coming quarters. Without supportive liquidity conditions or earnings delivery, we think positive share price gains are unlikely.”
