“The rally is coming”: why stocks could rise and where not to invest, according to RBC

The dangers of an impending recession and spiraling inflation frighten investors large and small. that participate in the stock and bond market around the world.

Faced with this panorama, stock market strategies seek to predict whether the valuations of the main assets have reached their lowest point or if the margin for their depreciation continues to be wide.

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However, according to a report from the Royal Bank of Canada (RBC)one of the main banking-financial entities in the world, estimates of a deepening of the stock market crisis would not be likely and “the stock market may have reached its lowest point of the year, or will do so very soon.”

RBC analysts believe that the crisis will not deepen.

Lori Calvasina, the firm’s head of U.S. equity strategy, says that if the global powerhouse is headed for a continued slowdown, or even a mild and relatively short-lived recession, “stocks will not reach the lows set in mid-June”.

In the research note, the analyst noted that, according to her team’s estimates, typical defensive stocks for crisis coverage are overbought and that investor confidence in cyclical assets will gradually begin to recover.

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What, I recommend investing in growth stocks over value stocks.because they could outperform long-term 10-year bonds, which recently downgraded their ratings.

“Growth is starting to look a bit better than Value at the rate of EPS estimate revisions, suggesting that earnings estimates are a bit better on Growth right nowI wrote.

Recession expectations also remain higher for the EU than for the United States, Calvasina said.

Calvasina said that the stock market tends to bottom out 4-5 months before the end of a recession and that the declines in broad stock indices and in the market’s price-to-earnings ratio have been large enough.

“US valuations have improved considerably. Recession expectations also remain higher for the EU,” he says. Finally, he wrote that it’s time for investors to overweight small-cap stocks, as recessions are good opportunities to buy them at rock-bottom prices.

Another OPPORTUNITY: THE UNITED STATES MID-TERM ELECTIONS

The upcoming midterm elections would also be an event that could catalyze asset growth. The S&P 500 index tends to rise about a month before the vote, indicating.

Calvasina said that “the combination of a Democratic president and a Republican-led Congress tends to be a scenario that could favor the stock market, which would encourage investors.”

“As the interim deadlines approach, equity investors are likely to revisit that playbook and incorporate it into their 2023 outlook,” the report concludes.

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