Markets reach capitulation levels, but it might be too early to celebrate – The Average Joe
Business Economy Tech Subscribe About Us

    Markets reach capitulation levels, but it might be too early to celebrate


    July 19, 2022

    Capitulation is seen as widespread selling, and it’s also one of the signs of a market bottom.

    Per Bank of America’s survey of 259 fund managers who collectively invest  $722B, we may have hit that point (FT).

    • Investors have had the lowest net exposure to stocks since 2008.
    • Cash levels are at 6.1% of assets managed — a 21-year high.
    • 58% are taking less risk than usual — below their risk tolerance in 2008.
    • One-third of investors say inflation is the biggest risk.

    Investors are parked in defensive industries like consumer staples, utilities and healthcare — sectors seen to be more resilient during a recession.

    Statistics say better days ahead

    Per Barron’s, whenever cash levels rise above 5%, the market posts positive returns on average in the following 12 months.

    The S&P 500 has rebounded slightly in the past month, but it might be too early to celebrate. Market risks are still prevalent, and strategists think we have lower to go

    • According to BofA’s Chief Investment Strategist, Michael Hartnett — “any rally is likely to be temporary.”
    • For an actual recovery, the Fed needs to reverse course with interest rates and unless inflation peaks, that’s unlikely.

    Hartnett believes the S&P 500 hasn’t reached levels “that would cause policymakers to panic and change course.” Try falling another 10-20%.

    Trending Posts