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

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%.