Russ Koeserich said a lack of clarity over the proposed QE tapering by the Federal Reserve, and surrounding market data in general, would likely to lead to broad-based financial market volatility over coming months.
Assuming inflation and any interest rate rises remain muted, he thinks equities are best-placed to weather the difficult conditions.
Koeserich pointed to the importance of the links between the housing market and the broader economy, shown by the pick up in bond markets following declining US new home sales and higher mortgage rates.
He added: “Retail investors are becoming increasingly frustrated with bonds. Last week marked the fourth straight week of fixed income outflows, with investors selling over $7 billion in bond funds. If investors grow even more aggressive in selling their bond funds, long-term rates could breach 3% for a prolonged period, endangering the housing market and the economic recovery.”
While he promotes risk assets against this backdrop, he warned there are certain areas of the stock market that are particularly vulnerable, namely utilities and consumer discretionary companies. Businesses linked to the housing market would struggle, he added, with an index of housebuilders down approximately 30% from its May highs.