Stock markets have more room to crash – researchers say

YEREVAN (CoinChapter.com) – The stock market has bled 20% year-to-date, intensifying fears of a prolonged sell-off. Moreover, historic data testifies to a continuation, potentially protracting for another six months.

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Historic analysis points to more pain for the stock market

French multinational investment bank Société Générale (SocGen) examined 56 crisis periods in the U.S. stock market history over 150 years. The study focused on drawdowns greater than 10% for S&P500 (SPX).

Based on 30 previous bear markets since 1870, SocGen estimated that the stock market would bottom out after plunging 30-40% below the Jan. 2022 peak. Solomon Tadesse, SocGen’s head of equity quant research for North America, specified Federal Reserve’s quantitative tightening policy as the main driving force behind the looming stagflation.

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Moreover, the researcher urged investors to brace themselves for more volatility in the stock market. He asserted that the turbulence is likely to persist until Fed has regained control over inflation, running at a 40-year high of 8.6%, according to the May CPI report.

U.S. hedge funds short stocks to “live to play another day.”

Meanwhile, hedge funds in the U.S. also expect further turmoil in the stock market. In detail, the funds have cut their net exposure, the difference between bets on rising prices and bets on falling prices, to the lowest level since 2010.

Additionally, several top Wall Street managers have taken bearish positions in their portfolios. For example, billionaire Ray Dalio’s Bridgewater Associates took 27 short positions in European stocks, worth over €9.8 billion. Moreover, the investment management company has already been positioning for a sell-off wave in U.S. equities, corporate bonds, and Treasuries.

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The 7% bounce might be a trap.

Tiger Williams, the founder of outsourced trading company Williams Trading, commented on the bearish expectations.

Equity hedge funds have been shelled this year, so when you are losing money every day you need to get out of harm’s way and live to play another day.

asserted the executive.

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U.S. financial giant Morgan Stanley shared the outlook. The bank called the week to June 16 “one of the largest in terms of global short [position] additions we have seen in recent years.” As a result, even though S&P500 rallied 7% since June 17, the upcoming quarter forecast is predominantly bearish.