US stocks have recovered a significant proportion of their losses since the first half of the year, but three major equity indexes fell this week under reviving fears about a hike in interest rates by the Federal Reserve, and there are signs that Analysts at Citigroup, the bulk of the wholesalers, said a bear market rally is already behind us.
According to Citi Research strategists, the current bear-market rally is roughly in line with the length of the average bear-market surge, and sentiment has already improved as much as it typically does during regular bear-market rallies, Which would suggest a possible end to the rally relatively soon.
In a note on Thursday, Citi Research strategists led by Dirk Willer, managing director and head of emerging market strategy, wrote, “Bear market rallies are often driven by sentiment, as the market becomes very bearish.” “More fundamentally, many bear-market rallies are driven by the expectation that the Fed comes to the rescue. The present is no different, as the Fed pivot narrative has been a significant catalyst.”
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Specifically, the chart below shows that AAII Bull-Bear Indicator, one of the closely watched investor sentiment surveysis nearly back to levels where bear-market rallies peaked, with expectations that stock prices will rise 1.2 percentage points over the next six months to 33.3% in the week of August 15, while bearish sentiment is 0.5 percent. Marks will increase to 37.2%. ,
Meanwhile, the SKEW index for the S&P 500, which measures the difference between the cost of derivatives protecting against a market downturn and the right to profit from a rally, normalizes almost as much as it would in an average bear-market rally. (see chart below), Citi Research said. The index can be a proxy for investor sentiment and volatility.
Federal Reserve officials agreed in July that it was necessary to move their benchmark interest rate enough to slow the economy to combat high inflation, while expressing concerns that they would, according to Federal Minutes, Can tighten monetary policy more than necessary. The meeting of the Open Market Committee, 26-27 July, continues on Wednesday.
See: Powell will tell Jackson Hole that recession won’t stop the Fed’s fight against high inflation
After the meeting minutes were released, St. Louis Fed Chairman James Bullard said he was leaning toward another huge increase of 75 basis points at the central bank’s September meeting. Meanwhile, Richmond Fed Chairman Tom Barkin said the Fed “will do what it thinks” to bring inflation back toward its 2% target. Bloomberg reportwhereas Reuters quoted Barkin said the results of the Fed’s efforts don’t need to be “catastrophic.”
See: Stop Misreading the Fed: Wrestling on the Ground Not Getting Cold Feet About Inflation
According to Citi Research, a bear-market rally refers to a bounce equal to or greater than 10% that occurs between a peak and a trough. The strategists wrote, “If a rally of 10% is followed by a new low, the next rally of more than 10% is a separate bear market rally (or a bull market, if no subsequent new lows are made). Is.”
s&p 500 spx,
The Dow Jones Industrial Average (DJIA) was up 15.4% from its 52-week low of 3,666.77 on June 16,
12.9%, and Nasdaq Composite Comp,
The Dow Jones jumped 19.4% from mid-June lows, according to market data. Overall, Citigroup notes that the three indexes have experienced a 17% rally in 42 trading days since June 16.
US stocks fell sharply in the week. Dow Jones Industrial Average DJIA,
It closed 292.30 points or 0.9% down at 33,706.74. , s&p 500 spx,
It had closed at 4,228.48, down 55.26 points or 1.3%. Nasdaq Composite Comp,
It declined 260.13 points, or 2.0%, to 12,705.22.