Institutional investors’ rush to exit the bourses has left the stock market prone to quick swings.
The Impending Wild Swings
The delicate foundation of the market was evident in New York Monday at around 1 p.m. The S&P 500 fell apart in minutes when it looked like the market would close green for the second consecutive day. Though Apple Inc. was cited as the culprit for the collapse after reports of its slow hiring, 2022 saw such swings in equities frequently.
S&P500 Monday’s gain of 1% was wiped out two weeks after the index had erased the 2% drop. Since January, it has been the 17th time when the benchmark reversed intraday gains of 1%. This movement has made the year most volatile since the global financial crisis.
EP Wealth Managing Director of Portfolio strategy Adam Philip says plenty of bad news has been already price. This has resulted in a tug of war between the investors weighing economic recession prospects against the robust valuations. S&P 500 has crossed 3900 for the third time this month but failed to sustain.
The equities have lost $15 trillion in market valuation in the bear run, with professional speculators cutting their exposure to the lowest in multi years.
Client data of JPMorgan Chase & Co have bets illustrated the dramatic shift in hedge fund positions with both bearish and bullish wagers. The group leverage in the extended position has plunged to the bottom 5% since the beginning of last year’s highs. The shorts also went up from their lowest level to the 70th percentile during the same period.
According to JPMorgan Chase analysts John Schlegel and others, the market has shown a whiplash reaction to the hot inflation data published last Wednesday. S&P500 futures declined nearly 2% on the same day before recovering to close less low. Treasury yields showed a similar knee-jerk reaction, spiking higher and retreating.
Schlegel wrote in a note a lack of further sell-off in equity and muted reactions in rates. This suggests that investors are actively trying to de-risk less. The lower positioning among investors could be the reason for low turnover among hedge funds.
There are also signs in other markets of convictions waning among investors and traders. Traders are shying from taking bulk positions ahead of the earnings reporting season. The Federal Reserve policy meeting has made traders reluctant to place huge wagers. Last week the equity trading volume fell to the lowest of this year.
Wells Fargo Securities Strategist Chris Harvey said the sentiments are terrible during the earnings reporting season. The market is searching for clear evidence of recession, consumer retrenchment, squeezed margins, earnings cuts, and low-end consumer pressures, to name a few.
