Market watchers at investment banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Nomura Holdings Inc. are among those anticipating a turnaround. Asian shares plunged on Thursday, after the S&P 500 index turned negative for the year following its worst fall since October.
Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, told Bloomberg Television that a correction in the current equity cycle would have to be seen, and it was likely that the turnaround would be powered by more cyclical and value-added sections of the market. Markets would grow to a strong economic and profits recovery, he said.
The global stock rally has already stalled close to record levels, weakened by virus lockdowns and timetable confusion for President Joe Biden’s $1.9 trillion fiscal relief initiative. The fight between retail investors and short sellers over firms such as GameStop Corp. added to the fear that parts of the market were running too high.
A assess of implicit volatility for the S&P 500 leapt Wednesday to the amount last seen before the November presidential election, as traders were poised for more uncertainty ahead. Demand for an exchange-traded fund that offers a leveraged bet on rising U.S. stock volatility indicates that some investors also regard stocks as overextended.
JPMorgan’s Marko Kolanovic in a Customer Note Wednesday recommended that investors disregard the stock bubble warnings and take advantage of the sale to buy more shares. The firm’s research shows that knowledgeable investors are far from exuberant, he said.
Seasonal patterns may also be at play, according to Nomura Holdings Inc.”There is a seasonal tendency for U.S. equity market sentiment to stagnate right now through early February,” Masanari Takada, cross-asset strategist at Nomura, wrote in a note on Thursday. Stocks “have just hit a speed bump, and we see little in the way of data that would justify deeper reading,” Takada said.
S&P 500 futures reported a drop of as much as 1.1% early Thursday in the Asian trading day and was 0.6% lower than 9:55 a.m. in London. Disappointment after the company’s earnings releases, including Apple Inc. and Tesla Inc., weighed on sentiment.
“Today’s tradeable low is a good chance,” Thomas Lee, Head of Research and Co-Founder of Fundstrat Global Advisors LLC, wrote in a research note on Wednesday. “It seems less likely to me to be a major summit considering how bearish a consensus has been.”
The Stoxx Europe 600 Index plunged open, while the MSCI Asia Pacific Index fell by as much as 2.1% to the lowest in more than two weeks.
Equity sector angst was less evident in other types of properties. Bond yields were largely stable, with the 10-year treasury yield down by around 1 basis point on Thursday to slightly more than 1%. The dollar swung upward, and the prices of gold and oil swung down.
“The price action suggests that overnight moves are merely corrective and not an end to all purchases,” said Jeffrey Halley, Senior Market Analyst at Oanda Asia Pacific Pte Ltd.