Caution persists as financial markets hit the reset button

Mon Mar 14, 2016 4:58pm EDT
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By Richard Leong

NEW YORK (Reuters) - After a miserable start to the year, financial markets are looking for a do-over.

Stocks, junk bonds and commodities were hammered throughout January and most of February, causing some investors to wave the recession flag, but now they've pretty much returned to levels that prevailed at the outset of 2016.

Investors and analysts, while encouraged, remain cautious on the prospect that riskier assets are poised for a prolonged rally. Some see the recent recovery as a temporary salve in what looks to be another poor year as the global economy continues to struggle, rather than a harbinger of better returns going forward.

"Sentiment is improving, but it could turn on a dime," said Kristina Hooper, U.S. investment strategist at Allianz Global Investors in New York.

Going forward, investors say the linchpins are oil, China, and the U.S. Federal Reserve. Oil slumped on Monday after Iran suggested a deal to reduce output among the world's biggest producers might take more time.

Other major assets have traded in lockstep with the price of crude, with investors using oil as a proxy for world economic health.

"Oil is the key to everything," Jeffrey Gundlach, chief executive officer at Doubleline Capital, told Reuters last week.

Oil has led the charge higher in the last month, notching a near 50-percent surge that has lifted inflation indicators, riskier credits, equities, and other commodity prices.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) March 4, 2016. REUTERS/Brendan McDermid