Is it still too late to “short” US stocks?

Wall Street has an old saying, “When you can buy a hedge, buy when you need to buy a hedge, it's too late” (buy the hedge when you can, not when you must). Since this year, US stocks have continued to fall, and investors urgently need to buy hedging. They have indeed bought a lot recently, but is it still effective?

Since 2022, the S&P 500 index has fallen more than 23%, the Nasdaq index has fallen more than 30%, and the Dow Jones Industrial Average has fallen nearly 20%. Almost all have entered a technical bear market. Looking at several big bear markets in US stock history, the current round of decline is second only to the Great Depression period of 1929 and the COVID-19 period in early 2020.

On September 28 (Wednesday), the 10-year US Treasury yield index approached 4%, the first time since 2010.

Marko Kolanovic, chief global market strategist at J.P. Morgan Chase, said in the latest report that the positions and return rates of all assets were the lowest since the 2010 statistics.

Market sentiment indicators have fallen below the pessimistic average, and the mood of depression has reached its extreme.

First, retail investors all poured into the Air Force camp. In the third week of September, retail investors bought $18 billion in bearish options, the highest number ever recorded. Currently, retail investors hold a total of 46 billion US dollars in short positions, which is also a record high.

Second, investment banks are also advised to avoid stocks. Goldman Sachs downgraded the global stock investment rating to “reduce holdings” for the next three months and advised investors to increase their cash holdings. Goldman Sachs strategist Christian Mueller-Glissmann said in Monday's report that the current stock valuation level may not fully reflect the risks associated with the recession, and may require further decline to reach the bottom of the market.

BlackRock also advised investors to “avoid most stocks,” adding that investors are advised to “tactically reduce their holdings of developed country market stocks.” BlackRock strategy analyst Jean Boivin wrote in Monday's report that the probability that the US economy will achieve a “soft landing” is very low, which means that risk assets such as stocks face greater volatility and downward pressure.

Generally speaking, retail investors are the opposite. When they invest in one direction, the market is likely to reverse, but the current situation is that institutions and retail investors are moving in the same direction. Is this more likely the opposite? Or is the market really not slumped yet?