"We remain relatively defensive for the three-month horizon with further headwinds from rising real yields likely and lingering growth uncertainty," Goldman Sachs strategist Christian Mueller-Glissmann wrote in a note to clients on Monday.
Mueller-Glissman recommended that investors go overweight (have more exposure to) cash and credit in the near-term. The investment bank, which is underweight (have less exposure to) bonds and stocks, sees opportunities to "add risk" in 2023 — but the moment isn't now.
"Without depressed valuations, for markets to trough investors need to see a peak in inflation and rates, or a trough in economic activity," Mueller-Glissmann added. "The growth/inflation mix remains unfavorable – inflation is likely to normalize but global growth is slowing and central banks are still tightening, albeit at a slower pace."
Investors, meanwhile, have sought to look beyond the negatives in the market in recent weeks.
Amid signs of an easing in inflation, lower oil prices and a renewed drop in the U.S. dollar, stocks have rallied since those the October lows. In the past month, the Dow Jones Industrial Average (^DJI) is up 7.9%, the S&P 500 (^GSPC) has gained 4% and the Nasdaq Composite (^IXIC) rose slightly.
However, those gains have begun to crumble as concerns mount over a contentious COVID-19 lockdown situation in China and how large manufacturers such as Apple and Tesla will be impacted.
"Our key point for now is that investors who conclude that: (1) protests will lead China to loosen Covid restrictions in the near-term; and (2) that this would bring relief to the economy, are likely being overly optimistic on one or both counts," 22V Research strategist Michael Hirson wrote in a note.