Investors have become so negative about the stock market that Wall Street thinks a rally may be on the way.
JPMorgan Chase & Co., Strategists led by Marko Kolanovic said this week that “investor sentiment is reaching extreme weakness,” meaning a rebound could be on the cards. Meanwhile, the Societe Generale SA sentiment indicator recently declined to levels seen during the peak of the COVID-19 lockdown. 2020.
“It will culminate in a boom in equities,” Societe Generale strategists Manish Kabra and Arthur Van Sloten wrote last week.
Other market technicalities could also point to a short-term upside.
The absolute level of the US put-call ratio is close to the highest level since January, when investors hedged in a falling market amid fears of a recession and aggressive tightening. Barring another major setback, this should provide some support to stocks as investors began to open those hedges after the Federal Reserve’s interest rate decision on Wednesday.
Furthermore, the CBO Volatility Index, also known as the VIX, has been at or above 30 for the past week – touching a high of 32.82 on Tuesday. Traders generally consider readings over 30 to be a sign of significant fear in the market.
More importantly, the spread between the two-month and eight-month VIX futures is trading close to the peak levels seen earlier this year, showing deep uncertainty about the near term. This indicator of short-term stress has historically been a turning point for riskier assets, with volatility topping the days leading up to the Fed’s last three meetings this year.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.