Sebastian Raedler, Head of European Equity Strategy at Bank of America, stated that the stock market has underestimated the growing risks facing the global economy, and that energy supply disruptions have further exacerbated the fragility of the economic outlook. Raedler pointed out that although the global economy demonstrated unexpected resilience and avoided a predicted collapse amid multiple major shocks between 2022 and 2026, this has precisely led to a blunting of investor sentiment. At present, even though energy supply disruptions already pose a substantial threat to global growth prospects, market participants still tend to habitually ignore such negative signals, falling into a collective blind spot regarding potential vulnerabilities.
In Raedler’s view, historical evidence repeatedly shows that if a large-scale energy shock cannot be reversed in the short term, it will inevitably lead to a sharp drop in global demand. He specifically cited the sharp decline in the global Purchasing Managers’ Index (PMI) in March as an early warning signal, criticizing the market for merely treating it as a minor fluctuation in sentiment. He further analyzed that investors generally harbor a psychological expectation that “nothing can go wrong,” which has led to European defensive assets being neglected for a long time. Raedler takes a contrarian stance on this, arguing that global economic growth momentum will face its first substantial setback since 2022 within the next year, and that this “demand destruction” will completely shatter the market’s current expectations of stability.
Regarding asset allocation, Raedler put forward a bold tactical recommendation: significantly reduce exposure to AI-related semiconductor stocks and cyclical sectors such as mining. He explained that these sectors are currently trading at multi-year valuation highs relative to the broader market. Once market risk premiums are forced to rise, these popular tracks will face enormous valuation correction pressure. At the same time, he believes the credit market also suffers from serious mispricing, with the spread on U.S. high-yield bonds needing to widen by at least another 100 basis points to truly reflect current credit risk. It is understood that over the past few years, as European stocks have risen modestly, Raedler has been one of the more cautious analysts on European equities. He made these remarks as European stocks are struggling—so far unsuccessfully—to extend a four-week winning streak, while U.S. stock index futures suggest that the S&P 500 may retreat from its record highs.
