As stocks continue their rally, several major financial institutions are now predicting a significant downturn in global markets. The S & P 500 index is up more than 10% since its low last October. In Europe, the STOXX 600 has risen by more than 15% over the same period. But according to some investment banks, those gains are now at risk as they fear the lagged effects of monetary policy tightening are likely to hit earnings and cause compression in profit margins this year. .STOXX 1Y line Here are five of the biggest calls so far: Bank of America: STOXX 600 down 20% in Q2 Wall Street bank believes current stock market strength is unsustainable and a bear market could be in second quarter of this year. We expect growth in the Eurozone and the US to slow to recessionary levels in response to severe monetary tightening. Shares are far from pricing in this scenario as they have been supported by recent strength in the hard data, driven by companies working down their backlog. If growth weakens, in line with our projections, as the excess of hard data relative to new orders subsides and underlying demand continues to weaken in response to monetary policy tightening, this would be consistent with around 20% downside for Stoxx 600 to 365. – January 20 GMO, S & P 500 fell 20% to 3,200 of December. GMO chairman Jeremy Grantham, who predicted a bear market last year, said share prices are currently supported by the “positive influence” of the so-called presidential election. cycle. However, the notable investor expects the S&P 500 to fall to 3,200 “and spend at least some time below that this year or next.” The ticking of the peak overconfidence bubble is behind us and stocks are now cheaper. However, due to the sheer length of the list of key negatives, I believe continued economic and financial problems are likely. I think they can easily turn out to be unexpectedly serious. I therefore believe that a continued market decline of at least significant proportions, while nowhere near the certainty it was a year ago, is much more likely than not. – January 24 UBS: STOXX 600 fell 8% to 410 in December. The Swiss bank also sees potential for an 8% decline to 410 (SXXP) due to declining earnings/margin expectations. We believe the market is significantly underpricing downside risks. With yields and global growth risks expected to remain high for most of this year, we do not expect a significant recovery in valuation beyond what we have already seen this year. – January 11 JP Morgan: STOXX 600 rose 3% to 465 in December. The US investment bank has a more mixed outlook. JPMorgan strategists said the current market rally would likely begin to fade in the first quarter of 2021 as the catalysts that have pushed stocks higher since October — peak bond yields, inflation and the U.S. dollar — have all factored into the market. JPMorgan believes the market will remain flat at the end of the year. We believe that the current market rally will begin to slow down as we move through Q1. The stock market is acting like we’re in an early recovery phase, but the Fed hasn’t even finished raising interest rates yet. While January still offers favorable seasonality and current investor positioning is far from heavy, both of which are currently supportive of equities, we believe potential gains over the next few weeks should be used to reduce exposure. – January 23 Barclays: STOXX 600 rose 6% to 475 in December. British-headquartered investment bank Barclays is positive on the European stock index. It expects the STOXX Europe 600 to end the year up 6% from current levels. It points to data showing that hedge funds reduced their net short positions in stocks, removing downward pressure, to base their view. Short interest has halved from Q4 highs for EU stocks, but remains elevated in the US. Makro (hedge funds) have flipped direct long shares, and their exposure is close to 12 million. highlights, but still below average. Long-short funds have also reduced short positions, but their net exposure remains low. US investors’ purchases of European equity ETFs have also increased, but overall positioning in the region remains far more cautious than positive consensus sentiment in the region suggests. – January 25