Bloomberg News reports that the stock markets are sending bullish signals amidst tentative signs that inflation volatility is escalating, as JPMorgan Chase & Co.
As the fears related to hawkish central banks and an impending recession sparked a rout in the US stock markets in the current year, the put to call the open interest of S&P500 options nosedived as demand for hedging declined, strategists led by Nikolaos Panigirtzoglou stated in a note on Wednesday.
The strategists also revealed that this reduction in demand for equity risk hedging is a bullish sign as it is likely to reflect that investors are opting for low equity positioning. They also said there are few sure signs that inflation volatility could be at the peak, which would be in tandem with the markets that will continue to move through the spike.
Opinion divided
Panigirtzoglou stated that this might signal a fair value of about 4,400 index points in the second quarter for the S&P500 index, which is an upside of approximately 7% from the present levels. In such an adverse scenario, wherein there is an assumption that the market will start to factor in a surge in inflation volatility, the fair value usually drops to 3,350 points, as stated by the strategists.
Bloomberg News reports that this call by Panigirtzoglou, who is an expert widely followed on Wall Street capital flows, comes only a few weeks after the S&P500 was found flirting with a bear market as Federal Reserve was located embarking on an aggressive rate-hiking path, triggering fears about a recession amidst rising inflation. Although the stocks have been trying to recover since then, a swell in the bond yields beyond the critical 3% level has subdued the demand for risk.
Strategists are holding divided views on whether the stock rout has finally found a floor, with the likes of Michael Wilson of Morgan Stanley predicting that the US benchmark will be trading close to 3,400 index points by the middle to late August, signaling yet another 17% drop from the recent close.
JPMorgan strategists on Monday, including Mislav Matejka, reiterated bullish views on the stocks stating that the fundamental risk-reward related to the equities is showing improvement as the second half of the year is being approached, reports Bloomberg News.
