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Column-Wall Street thanks, year-end eyes: McGeever According to Reuters



© Reuters. FILE PHOTO: The Wall Street entrance of the New York Stock Exchange (NYSE) is seen in New York City, U.S., November 15, 2022. REUTERS/Brendan McDermid

By Jamie McGeever

ORLANDO, Fla. (Reuters) – As Wall Street reopens after the Thanksgiving break, investors are looking for one final push to ensure that 2022 will be just another bleak year, not a shower. blood that most people fear.

Since hitting a two-year low in October, the currency has rallied 15% even though interest rates, Fed tightening expectations and recession probabilities have all increased, and the outlook for earnings growth has increased. has deteriorated.

Investors seem determined to end the year off as much of their previous losses as possible, and the good news is that post-Thanksgiving trading history is on their side.

According to Ryan Detrick, director of market strategy at Carson Group, in the 23 years since 1950 when the S&P 500 fell year-to-date on Thanksgiving, it has risen 14 times in the remaining weeks of the year.

The average year-to-date loss on Thanksgiving Days during these years is 10.5%, and the average post-Thanksgiving gain through December 31 is 1.5%.

The S&P 500 year-to-date loss on Thanksgiving Thursday this year is 15.5%, after falling as much as 27% in mid-October. Can it sustain this rally?

“We are entering one of the more seasonally bullish periods of the year and it is likely that inflation will continue to peak and the Fed will turn dovish soon… we are waiting for a rebound,” Detrick said. another strong at the end of the year”.

If there was ever a year when Wall Street was forecast to post above-average gains in the last few trading weeks of the year, it was that year.

Even apart from the instinctive “FOMO” (fear of missing out) investors have when an uptrend is in progress, positioning is extremely light and the portfolio is historically low-weight stocks. . This reinforces the uptrend that is currently driving the market, regardless of fundamentals like growth outlook or interest rates.

From a pure risk management perspective, investors will be reluctant to start a new year with too high or too low weighting, so they will be inclined to reverse that deviation when the current year ends. .

CARRY BELOW WEIGHT

According to the latest Bank of America (NYSE:NYSE) global fund management survey, investors’ cash levels in November stood at 6.2%. This is down slightly from last month’s 21-year high of 6.3%, but still well above the long-term average of 4.9%.

Compared to the average positioning over the past 10 years, the biggest underweight position for investors this month is stocks. Their current equity allocation is 2.4 standard deviations below the long-term average.

Meanwhile, their completely disproportionate position on tech stocks is the largest since 2006.

“All was a haven for the bulls in Q4,” BofA analysts wrote in their monthly report.

The bond market may be clamoring for a recession – nearly the entire US Treasury yield curve is inverted, some showing the deepest inversion in more than 40 years – but the Street’s signals Wall can be summed up as: keep calm and keep buying at the end of the year.

Look at Wall Street’s volatility gauge. Implied volatility hit a three-month low of 20.32 on Wednesday and has now fallen for six straight days, the longest losing streak since May.

Having reduced its losses significantly from the start of the year, the stock is not priced in for the damage that higher interest rates will cause. They will come at some point, but not yet.

In essence, “risk-free” assets are prepared for the worst, risky assets are not. The bond investor’s cup is always half empty, while the stock investor is inherently optimistic and often doesn’t heed the warning signs until it’s too late.

To repeat the past Citigroup (NYSE:) CEO Chuck Prince’s infamous quote from 2007, as long as the music plays, stock investors will keep dancing. The party tunes are playing.

(The opinions expressed here are those of the author, a columnist for Reuters.)

Related columns:

– The Fed may exhort the market to prevent an early pivot

– Correlation break – stocks, volatility link crack

– Fed may be wary of favored yield curve alarm

(By Jamie McGeever; Editing by Marguerita Choy)



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