(Bloomberg) - It’s still too early to buy into the rout in equity markets as credit spreads rise and earnings revisions almost turn negative, strategists at Credit Suisse Group AG said.
European and U.S. stocks are rebounding Wednesday after they slumped this week as oil rose past $120 a barrel and inflation remained elevated amid Russia’s invasion of Ukraine. Still, the strategists said equities have room to fall further as oil could climb as high as $140 to $160 a barrel before peaking.
“There is still no upside on our equity risk premium model,” strategist Andrew Garthwaite wrote in a note, adding that when Iraq invaded Kuwait in 1990, oil prices only peaked two months after the invasion.
The war in Ukraine has already upended the global energy market with sanctions on Russia sparking supply fears and compounding concerns of slowing economic growth. The conflict could result in the European economy growing just 1% this year compared with the firm’s previous forecast of between 2% and 2.5%, the strategists said.
Within sectors, they further reduced their exposure to non-financial cyclical stocks including consumer, while adding to a small overweight position in utilities. They reiterated their overweight position in big pharma as it tends to be the biggest dollar earner and is the best-performing sector when business activity contracts. The strategists also maintained an overweight call on European oil companies.
By Sagarika Jaisinghani and Michael Msika
