A market bounce since January and February lows is at risk of crashing back to earth, according to Russ Koesterich chief investment strategist at BlackRock.
BlackRock is the latest financial institution to warn that the current rally may be short lived after Morgan Stanley yesterday said that economic and political circumstances may take its toll on company shares.
The FTSE 100 and S&P 500 are both up by 12 per cent from their February lows, though the FTSE 100 has gotten off to a bad start to the week - currently down by over half a per cent after ending the day lower yesterday.
The equity rebound of the past month is a classic “relief rally,” where investors are relieved conditions are not as bad as they previously feared. This one has been partly predicated on hopes that China is stabilising ... unfortunately, signs of real improvement in China are scant. Given the still uneven pace of global growth and tighter financial market conditions, volatility may too be low ... which would imply another bout of stocks selling off.
Much of the market fear stems from China and emerging market slowdown, as well as the low oil price.
Oil has recovered somewhat from its January lows of $27 dollars per barrel, up around 40 per cent to over $40 earlier this week.
The oil price was been dragged down in the past 24 hours by comments from Iran pouring water on hopes the country will join Opec and Russia to cap production.
The price of a barrel of international benchmark Brent crude is now trading at $38.90.
Koesterich points to everyone's favourite volatility index, the US VIX, for reason behind the warning.
Against this backdrop of continued uncertainty in the global economy, the recent rally is beginning to look a bit excessive. The VIX Index, a key measure of equity market volatility, has fallen to about half of its February peak. Meanwhile, the VVIX, which measures the volatility of volatility (or, more precisely, how frequently volatility spikes occur), is back to its lowest level since last August. March may have come in like a lamb, but the lion may be lurking.
15 March 2016 @ 1:15pmFTSE 100 (UKX)