Stocks Are Overvalued and Investors Are Pulling Money Out of It: Strategists
The latest strategists' research suggests that the stock market is too expensive, meanwhile, investors are selling equities to the interest rate fears.
$JPMorgan(JPM.US$ strategist Marko Kolanovic thinks equities are overvalued and at risk of further losses as a divergence with bonds is yet to close. The current market decline does not fully price in the future sharp interest rate hike by Fed since the last meeting.
For the current level of real rates, history implies the $S&P 500 Index(.SPX.US$ is 2.5 times too expensive, he wrote.
Risk markets are misaligned with policy and cycle," Kolanovic wrote in a note on Monday. "Risk-reward for equities remains poor in our view, reinforcing our underweight equity stance."
Even bond traders digested the hawkish Fed comments to impose inflation down, but equities reacted mildly and still remain at a 4% gain this year. Which led to a large divergence between the asset classes.
Similarly, $Citigroup(C.US$ strategist Chris Montagu finds signs that bear traders are timidly back to the market.
Last week, $3 billion of new shorts were added to S&P 500 futures positioning and a net $5.1 billion pulled out of exchange-traded funds, he wrote.
Still, net positioning remains positive, suggesting either that there's more unwinding to be done or that that investors are not convinced about the recent bearish turn, he added.
Last but not least, investors are dumping equities and cash to avoid the risk that the Federal Reserve persists with hawkish policy moves, $Bank of America(BAC.US$ strategists Michael Hartnett wrote in the note last week.
Global equity funds lost $7 billion in outflows in the week through Feb. 22, while $3.8 billion left cash funds, according to a note from the bank. At $4.9 billion, bonds drew additions for an eighth straight week in the longest such streak since November 2021.
Hartnett reiterated his view that the S&P 500 could slide to 3,800 points by March 8, implying an over 4% decline from its latest close on Feb 28. His prediction was based on the expectation of both resilient growth and higher interest rate in the first half year, and later led to a drastic decline in the second half.
Source: Bloomberg
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