Citi argued Tuesday that the stock market has reached "peak bearishness" related to expectations for the Federal Reserve and the risk of an eventual recession. As such, investor attention will now turn to earnings results and projections from individual companies, the firm stated.
In a note authored by Scott Chronert and Drew Pettit, Citi based its opinion on positioning data, which it says shows that some investor types have already moved their portfolios to prepare for an eventual recession. As such, much of the selling based on fears related to the economy and interest rates has already happened, Citi concluded.
"In the end, we suspect the already recession-like repositioning and trading data could mean that in the near-term peak bearishness may be behind us. The fears of Fed tightening and a growth slowdown ahead have likely had its sharpest impact on prices and valuation," Chronert and Pettit wrote.
Citi contended that investor focus will now fall on specific stocks rather than macro factors, leading to a "refocus on individual company fundamentals."
"From here, we suspect that volatility will move more down the single stock path," Chronert and Pettit noted. "With the Q2 reporting period approaching, we expect to see more evidence of this."
Citi stressed that "in no way are we completely out of the woods" for the stock market. Rather, the attention has turned to corporate earnings figures and projections for 2023 rather than generalized economic concerns.
"There is still risk to earnings from here," Chronert and Pettit wrote, adding "we have to recognize that the earnings outlook from here, especially 2023 numbers, have not been de-risked to the same extent as valuations."
Given Citi's perspective that investors will now turn their attention to individual stocks, read Credit Suisse's list of the 25 stocks that have fallen lately despite improving earnings.