BCA analyst suggests that the US stock market is likely to soon peak and a bear market will begin. Global asset allocators should increase their allocation to government bonds rather than stocks. A significant allocation to US dollar cash is also reasonable.
Is the bear market in US stocks making government bonds the safest option?
Recently, US technology stocks were hit hard and the market value of giant companies evaporated. The S&P 500 fell three consecutive days, damaging market confidence.
Prominent investment research institution BCA Research warns investors in its latest report that the US stock market may be on the cusp of a peak, with a bear market looming.
Warning signs of the bear market: The ratio of "wait-and-see cash" has hit a historic low.
Analyst Arthur Budaghya believes that the main reason for the US stock market peak is that the ratio of "wait-and-see cash" held by individual and institutional investors has reached a historic low, indicating that the market is "underpowered."
"Wait-and-see cash" refers to the proportion of cash held by investors. A decrease in this ratio means that investors are more inclined to invest in the market, but currently this proportion has reached a historic low, indicating that there is not much cash available for investment in the market.
Budaghya said that the total amount of investable funds is still very large in absolute terms, although this number has stagnated as the Fed reduces its asset holdings.
In addition, the Fed's quantitative tightening policy has reduced the money supply, reducing market liquidity and intensifying the tension of market funds.
Based on this, BCA Research recommends that investors increase their holdings of government bonds and US dollars to reduce investment risks. Government bonds are considered to be a safer investment option, while US dollars can help investors reduce losses in volatile market conditions.
The US stock market is likely to peak soon and the bear market will begin. Global asset allocators should increase their allocation of government bonds rather than stocks. A significant allocation to US dollars cash is also reasonable.
Budaghya points out that the low proportion of investable funds and high valuations in the US stock market could be a turning point for an AI-driven stock market rebound. At present, large technology companies such as Apple and Microsoft have conducted a large number of share buybacks, but this cannot completely offset the downward risk of the market.