Exaggerated fear in the markets

Chart of the week

The chart shows how before a recession the stock markets often correct downward. On average, since 1945, the slump is 24%. Currently, the U.S. stock market is down 34% since its high last year.

Why this matters

You may ask "what recession then?". And of course they are absolutely right. We are not in a recession and a potential recession is still a long way off. Yet the markets are behaving as if a recession is coming. The market is afraid of something that is not yet. This fact shows how exaggeratedly fearful the market currently is.
Even a good economic figure, which shows that he economy is doing well, can lead to a change in trend.

Exaggerated fear in the markets....

The chart shows a monthly Bank of America survey of the largest global asset managers (Fund Manager Survey). The professionals see the biggest danger as central banks raising interest rates too much, forcing the economy into a recession. We've written about this before, too, and share this fear.

The chart shows from the same Bank of America survey of the largest global asset managers how they are currently invested. The percentage of cash that they are holding is very high and most of the time the trend reversed at these points. This time, too, buying by the world's largest investors could lead to a change in trend.

This chart also comes from Bank of America's survey of the world's largest asset managers. It shows how many of the respondents expect a stronger economy in the coming months. It is currently lower than it was in the middle of the Covid crisis or the financial crisis.

Of course, we currently have many negative points that are cumulative. The war in Ukraine, supply chains that don't work and the fear of rising interest rates. Nevertheless, we consider the current pessimism to be exaggerated.

...but nobody wants to be the first to buy.

For the long-term development of the markets, the fundamentals of the economy, the profit development of the banks and the central bank policy are decisive. In the short term, however, technical financial market analysis also has a major influence.

The chart shows the performance of the NASDAQ index. The US index is also considered a barometer for the technology sector, as most technology companies are traded there. It is precisely the technology companies that have driven the stock market down sharply in recent months.
The index is its beginning of the year in a clear downward channel. In the next few days, an important decision is now pending. Will the channel hold or will the price break through to the downside?  The indicator RSI (Relative Strength Index) shows when a market is oversold and a countermovement is pending. This is currently the case, but it was also a week ago and there was again a dip down. That is why currently also the followers of technical analysis are unsettled.
The performance of the next week, could be decisive about the movement of the markets in the next 1-2 months.