According to strategists, the recent stretch in US stocks may be nearing an end if history is a guide Goldman Sachs Group Inc. and Deutsche Bank AG.
Since the financial crisis, its magnitude in the S&P 500 has corresponded to a “typical” selloff, although, at a brisk pace, wrote a team led by David Costin of Goldman in a note on Friday. And the option position – at the core of weakness – is normalized, Noted His counterparts in Deutsche including Senial Jalgani on the same day.
Goldman Strategists wrote, “Despite a sharp sell-off in the past week, we are optimistic about the path to the US equity market in the coming months.” “Since the financial crisis, the typical S&P 500 pullback of 5% or more has lasted 20 business days and has risen from peak to trough by 7%, matching the magnitude of the most recent pullback if not the speed. is.”
Historically high equity valuations and a revaluation of volatility in option markets have sent the S&P 500 down nearly 7% from its record on Sept 2, although it is up nearly 50% from its March low. Nasdaq 100 off 11% after investors Questioned whether a rally in take-heavy gauge could also be very bad.
Meanwhile, the Deutsche team focused on the impact of the options market, using a metric that looks at the number of recession contracts relative to the boom. The team said it had fallen to its 10-year low – indicating peak levels of positive sentiment – but had already recovered to “average” levels after the correction, the team said.
“Historically, the improvement in the put-call ratio has been for fast and short-term market effects,” the strategists wrote.
Nevertheless, both teams pointed to the US election as a major source of uncertainty for further markets.
Deutsche strategists warned, “Investors still have to contend with the upcoming macro event of the US presidential elections.” “With an unprecedented unprecedented amount of mail-in ballots, there is a greater likelihood of instability in the days following the election.”