Investing.com – As Wall Street kicked off a downturn in global stocks starting on Tuesday, analysts at Saxo Bank suggested that fading conviction in the reflation trade could see a 5% to 10% drop in global stocks.
Peter Granry, head of equity strategy at the Dutch investment bank, pointed out that much of the narrative in stocks has revolved around the November 8 election of Donald Trump to the U.S. presidency, but suggested that Tuesday marked an abrupt loss of conviction in that so-called reflation trade.
“We see further upside in volatility as markets are now constructing a new narrative that essentially centers on the likelihood that the pro-growth Trump policies are set for a bumpy road with many road blocks,” Garnry explained.
“Global equities could easily fall 5-10% in what would be a normal healthy technical correction,” this expert predicted.
Garnry commented that the selloff would likely be driven by cyclicals: financials, materials and consumer discretionary.
“A big question mark here is whether technology stocks will hold the line,” he said, adding that “U.S. financials should reprice significantly if this new narrative unfolds.”
For the S&P 500, Garnry highlighted 2,300 points as the next big technical support level, followed by 2,250.