Barclays believes a market “melt-up” could be on the horizon if three things materialize in the near future: A trade truce, Federal Reserve rate cuts and the economic slowdown only being a soft patch.
The so-called melt-up refers to a sharp move higher driven by investors late to the game looking to get in on a momentum shift. It is often a sign of a late-stage bull market.
A melt-up “is indeed possible, but would require a confluence of several outcomes: 1)Trade tensions decrease substantially; 2) The Fed eases aggressively; 3) The current industrial slowdown remains a soft patch and does not morph into a full recession,” Maneesh Deshpande, head of equity derivatives strategy at Barclays, said in a note Tuesday. “Although this is not our most probable scenario, we acknowledge that its likelihood has increased.”