April 17, 2024

Market Positioning Shows Equities are in for More Pain

When the coronavirus pandemic struck back in 2020, there had been mayhem in the financial markets and a market trends indicator by the Bank of America (BofA) Securities had come down to zero. According to BofA, the same has happened again, which is an indication of extreme bearishness. Investors are pulling out of risky assets such as crypto, as risk appetite has gone down in such an environment.

Investors Are in for More Pain

This week, the US stock indexes entered a bear market, which had begun in January. Likewise, a number of stock markets all over Europe have also declined by more than 20% from their closing highs this year. Despite this situation, equity positioning is still heavy and this is an indication that there will be more pain in store for investors.

The US investment bank issued a weekly note regarding the investment flows applicable to different asset classes. It highlighted that every inflow worth $100 in the markets since January 2020 had recorded an outflow of $35 from debt. As far as stocks are concerned, it had been zero, which shows that equities are going to suffer more.

Security analysts of Bank of America said that capitulation so far has been recorded in credit and crypto assets and not in the case of stocks. Therefore, it is possible that equities have not yet reached their lows. A number of technical indicators applicable to the stock market show that there could be deeper losses in the future.

Indexes Are in Trouble

The US investment bank asserted that a gauge of US equities had hit a moving average of around 200. This comprises of domestic stocks, bond ETFs as well as overseas listed stocks. If it moves below, then it would be the lowest it has been in the last four years.

Likewise, the tech-heavy Nasdaq Composite has also reached the 200 moving average and data shows that it had not gone near this level since 2008, when the global financial crisis struck. This week has been one of the most tumultuous ones for global stocks in financial history, all because of the aggressive tightening policies deployed by central banks for taming inflation.

There is a 5.7% drop in the MSCI global index, which would be the sharpest weekly decline it has seen in two years. This market, the market capitalization of global stocks has fallen by almost $20 trillion.

Other Asset Classes

It is not just stocks that are suffering, but other asset classes like cryptocurrency have also taken a hit. Bitcoin, which is the world’s largest cryptocurrency, has lost almost 50% of its value from its high of this year recorded on March 28th at 48,234. In fact, it went below the $20,000 threshold for a while, which is the lowest it has been after December 2020.

As for equities, the last six weeks saw US equity record inflows, while European ones recorded outflows for the last 18 weeks and Japanese equities recorded outflows for the previous four weeks.

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