Standard Chartered Wealth says these two factors could cause near-term correction in US markets

Standard Chartered Wealth Management expects near-term correction in the US equity market led by two factors: inflation and the heavy investments in US stocks.

In an interview with CNBC-TV18, Steve Brice, Chief Investment Officer at Standard Chartered Wealth Management explained that events in the Middle East, such as disturbances in trade routes through the Red Sea and the Suez Canal, are causing concerns over inflation. "And clearly that is going to have a stagflationary effect to some degree. So obviously, there is a growth impact while there's also an upside inflation impact," he noted.

Stagflation is an economic condition where slow economic growth and high unemployment occur simultaneously with rising prices (inflation).

The second factor, explained Brice, is the high level of positioning in US equities. He mentioned that they examine their proprietary indicators, along with various other market positioning indicators, indicate a considerable 'overweight' position in US equities, which might result in some short-term disappointment.

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“We are not alone in looking for this; a lot of people are starting to talk about it, over the weekend I saw a lot of news reports, people flagging this risk. So, we could still grind over higher in the immediate future. But we would not be adding to equity portfolios. We have been trimming a bit so far this year,” he said.

Consumer price index (CPI) in the US, per data released by the Labor Department on February 13, increased by 0.3% from December to January, marking a slight rise compared to the 0.2% uptick seen in the previous month. Over a year, prices have surged by 3.1%.

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The latest figure, at 3.1%, is lower than the 3.4% recorded in December and significantly lower than the peak inflation rate of 9.1% reached in mid-2022. However, it remains higher than the Federal Reserve's target level of 2%. This comes at a time when public concern over inflation has become a crucial issue in President Joe Biden's re-election campaign.

Brice also shared his view on the Indian market noting that any weakness here will be potentially less severe than that expected in the US. "So, probably we will be less patient to add to Indian portfolios than we would be in the US.”

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The Nifty 50 started trading today above 22,100 points and is very close to setting a new record high. Additionally, the broader market indices, including the Nifty Midcap and Nifty Smallcap, have also begun trading with gains of 0.6% each.

For the entire interview, watch the accompanying video