One of the largest banks on Wall Street has just gone on the record calling for a major equity market firestorm. In an unusual move, Citi questions the recent rise in stocks and contends that things may unravel quickly. “It may be that easing trade tensions and China’s policy response are comforting investors, but the move has the hallmarks of herd instincts at work”. Citi continued, “riding the tailwinds of easy policy and fiscal stimulus, but these drivers are failing. Meanwhile storm clouds are gathering and risks look biased to the downside”. Goldman Sachs seconded the views, saying that market gains had been too narrow and would lead to “large drawdowns”.
FINSUM: It has been quite puzzling that stock prices have moved higher and higher even as the trade war was looking worse and worse and the Fed continued to be committed to its tightening path. Sharp reversal coming?