As some investors grow increasingly optimistic that the economy may avoid a major recession even as it controls excessive inflation, the US stock market is gradually becoming more positive.
Since mid-June, the tech-heavy Nasdaq Composite is up 20%, and the benchmark S&P 500 has recovered about 15%, half its annual loss.
Several of the so-called meme stocks that had suffered losses in the first half of the year have increased in value even though the CBOE Volatility Index, also known as Wall Street’s fear barometer, is almost at a four-month low.
The American Association of Individual Investors found that over the past week, bullish sentiment rose to its highest level since March.
That indicator hit its lowest point in nearly 30 years when stocks crashed earlier this year as a result of worries about how the Federal Reserve’s monetary tightening might impact the economy.
“We have seen a significant amount of suffering,” says Mark Hackett, head of investment research at Nationwide, “but the outlook in how individuals are trading has significantly altered towards a glass half full versus a glass half empty.”
Data from the previous two weeks increased confidence that the Fed can facilitate a smooth economic transition. Even though last week’s strong jobs report allayed fears of a recession, this week’s inflation statistics showed the biggest month-over-month drop in consumer price increase since 1973.
The market had changed, according to data released by BofA Global Research on Friday. Tech stocks experienced their largest inflows in about two months over the past week, while Treasury Inflation-Protected Securities, which are used to hedge against inflation, experienced their fifth straight week of outflows.
“If, in fact, a gentle landing is achievable,” said Art Hogan, chief market strategist at B Riley Wealth, “then you’d want to see the kind of data inputs that we have seen so far.” Strong job statistics and declining inflation would both be essential supporting evidence for that claim.
Before lately, optimism was hard to come by. Analysts at Deutsche Bank reported on July 29 that equities positioning in the previous month were in the 12th percentile of its range since January 2010.
Some market participants believe that investors hastily unwinding their bearish wagers is what caused the sudden surge in stock prices.
As stock market gyrations have plummeted to multi-month lows, additional support for stocks could come from funds that track volatility and turn bullish when market swings diminish.
Anand Omprakash, head of derivatives quantitative strategy at Elevation Securities, predicts that volatility-targeted funds may absorb about $100 billion of equities exposure in the next months if gyrations are maintained to a minimum.
Mr Omprakash predicted that share prices would rise if their allocation increased.
Next week, retail sales and housing statistics will be closely watched by investors. Also scheduled to report their earnings results are several well-known retailers, including Walmart and Home Depot, which will offer new information about the state of the consumer.
Inflation may return soon, according to experts, and the Federal Reserve has dismissed predictions that it will stop hiking interest rates sooner than anticipated.
Some investors are worried about the sharp increase in risk appetite. AMC Entertainment Holdings, one of the first “meme stocks,” has had its share price grow twofold since mid-June, while the Ark Innovation ETF, a major casualty of this year’s horrible market, has seen its share price rise by roughly 35%.
You don’t see many worries priced into markets right now when you look across assets, says Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
Read more:-
- Michelle Branch Net Worth: How Much Does She Earn in 2022?
- In the Dismal New Netflix Series “Day Shift,” Starring Jamie Foxx as the Father Who Hunts Vampires, Foxx is Back on the Top
- Now One Step Closer is an Expanded Version of the IRS’s Free-file System
According to Keith Lerner, co-chief investment officer at Trust Advisory Services, technical resistance and increasing stock valuations would likely make it difficult for the S&P 500 to increase much above the 4,200 to 4,300 mark. The index was 4249 on Friday in the afternoon.
Seasonality could also be crucial. Since 1928, September — when the Fed holds its next monetary policy meeting — has been the worst month for stocks, with the S&P 500 losing an average of 1.04 per cent.
According to Mr Hogan, Wall Street employees’ vacations in August may potentially hurt business and heighten volatility.
Lighter liquidity, he said, “tends to exaggerate or exacerbate changes.”
