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Investors have placed more bets that stock prices will fall further than at any time since 2016, according to JPMorgan Chase.
At the same time, bets that share prices will rise have tumbled to their fewest since April 2020, when the COVID-related lockdowns were crashing the economy, Deutsche Bank analysts said.
Investors are fleeing stock markets out of fear that a recession is near, The Wall Street Journal reported.
The Standard & Poor’s 500 stock index has lost 19 percent of its value this year as of 15 July, the WSJ said, its worst year-to-date performance since 2002.
The share of investments that asset managers are allotting to stocks has sunk to one of the lowest levels since the COVID War began, a survey by the Association of Active Asset Managers found.
The portion has reached one of the lowest levels since 2010, Deutsche Bank noted.
Investors also have increased their bets that the U.S. Federal Reserve will raise interest rates by a full point at next week’s meeting, something it has not done in more than 25 years.
A poll by the Federal Reserve Bank of New York revealed that about two-thirds of investors expect stock prices to stay flat at best or fall further this year, the largest proportion since the bank began the survey in 2013.
The bond market’s inverted yield curve—often a reliable indicator of a looming recession—has reached its widest span in 20 years.
“It’s classic investor behavior,” Andrew Slimmon, a portfolio manager at Morgan Stanley Investment Management, told the WSJ. “People are reacting to what has already happened by getting cautious too late.”
Stocks’ plunge so far this year signals a brighter second half of the year, he predicted.
“The second half of the year will be more favorable for the market,” he said, “especially for some stocks which did very poorly.”
Institutional investors’ massive flight from stock markets during this year’s first half suggests they are likely to return during the second half, JPMorgan analysts suggested in a note to clients.
TREND FORECAST: Considering that the game is rigged—i.e., The Plunge Protection Team pushing equities up when they are in sharp decline—absent undeniable terrible socioeconomic and geopolitical news, equities can still move higher.
Indeed, the Fed raising interest rates .75 basis points or a full one percent is still small change when accounting for the 9.1 percent U.S. inflation rate. With inflation so high and interest rates so low, funding for the Wall Street money junkies is still cheap, thus, they will do all they can to stay on their M&A and equity market buying spree.