Strategists are lining up to recommend buying the dip in stocks, anticipating that more stimulus and a global economic recovery from the pandemic will bolster equities.
Market watchers at investment banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Nomura Holdings Inc. are among those expecting a turnaround. Asian shares slumped Thursday, after the S&P 500 index turned negative for the year following its worst drop since October.
“This should be seen as a correction in a new equity cycle, and it’s likely that recovery when it comes back again will be led by more cyclical and value parts of the market,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said on Bloomberg Television. Markets will climb on a strong economic and profits recovery, he added.
The global stock rally had already stalled near record levels, hurt by virus lockdowns and uncertainty over the timeline for President Joe Biden’s $1.9 trillion fiscal relief plan. A battle between retail investors and short sellers over firms such as GameStop Corp. added to worries that parts of the market were running too hot.
A gauge of implied volatility for the S&P 500 jumped Wednesday to levels last seen before the November presidential election, as traders positioned for more turbulence ahead. Demand for an exchange-traded fund that provides a leveraged bet on rising U.S. equity volatility suggests some investors still view markets as overextended.
JPMorgan’s Marko Kolanovic in a note to clients Wednesday recommended investors ignore warnings about a bubble in equities and take advantage of a selloff to accumulate more shares. The firm’s analysis indicates professional investors are far from exuberant, he said.
“Any market pullback, such as one driven by repositioning by a segment of the long-short community (and related to stocks of insignificant size), is a buying opportunity,” he wrote.
Seasonal trends may also be in play, according to Nomura Holdings Inc.
“There is a seasonal tendency for U.S. equity market sentiment to stagnate right around now through early February,” Masanari Takada, cross-asset strategist at Nomura, wrote in a note on Thursday. Stocks “have simply hit a speed bump, and we see little in the way of data that would justify a deeper reading,” Takada said.
S&P 500 futures pared a decline of as much as 1.1% early in the Asian trading day Thursday and were 0.6% lower as of 9:55 a.m. in London. Disappointment after earnings reports from companies including Apple Inc. and Tesla Inc. weighed on sentiment.
“There is a good chance today is a tradeable low,” Thomas Lee, head of research and co-founder of Fundstrat Global Advisors LLC, wrote in a research report on Wednesday. “It strikes me as less likely a major top considering how bearish consensus has been.”
The Stoxx Europe 600 Index slumped at the open, while the MSCI Asia Pacific index fell as much as 2.1% to the lowest in more than two weeks.
The equity market angst was less visible in other asset classes. Bond yields were broadly steady, with the 10-year Treasury yield down about 1 basis point on Thursday to a little over 1%. The dollar nudged upward and both gold and oil prices edged lower.
“The price action suggests that the moves overnight are merely corrective and not the end of the buy-everything trade,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte Ltd.
(Updates with Nomura comment from the eighth paragraph.)
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