Photo: Bloomberg
According to Deutsche Bank AG, investors reduced their equity allocations more than at any time since the beginning of the Covid pandemic during last week’s market volatility, when stock markets temporarily crashed, Bloomberg reports. Is this an opportunity for a sustainable recovery in the stock markets because many investors will now get back in?
Deutsche Bank: Investors are exiting stocks like never before since the Corona crash
According to Deutsche Bank data, the overall allocation to equities is now in the 31st percentile and is therefore underweight, write strategists such as Parag Thatte in a note dated August 9. Just three weeks ago, the exposure was still at the upper end of the historical range in the 97th percentile.
The reduction in equity positioning implies a slowdown in corporate earnings to “low single digits,” compared with an 11% increase in the second quarter, the strategists said.
According to Bloomberg Intelligence, analysts expect S&P 500 earnings to rise 5.3% and 11.3% in the third and fourth quarters, respectively.
Concern about recession
Concerns about a potential recession in the US have rattled global financial markets, with technology stocks leading the sell-off. The S&P 500 has almost recovered its declines from last week, but is still nearly 6% below its record high in mid-July. An index that tracks the volatility of US stocks (VIX), reached a level last week that has not been reached since 2020.
Deutsche Bank strategists say systematic funds are likely to continue to face pressure to reduce their exposure if volatility remains elevated, “although their sensitivity to market sell-offs has decreased.”
After last week’s data showed a slower than feared slowdown in the US labor market (US initial claims), attention will turn to US producer prices on Tuesday, which US consumer prices on Wednesday and US retail sales on Thursday. Good news from the US economy is now actually good news for US stocks – this was not the case before, when markets hoped that bad data would force the US Federal Reserve to cut interest rates quickly.
FMW/Bloomberg
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