After a tumultuous January for U.S. stocks, analysts at RBC Capital Markets have spotted some “good things” in equities amid investor concern over high valuations and the Federal Reserve’s pivot toward tightening monetary policy in the face of high inflation.
“Another way to think about the recent turmoil is through the lens of the rotation out of overvalued growth stocks, which were bid up not only due to easy monetary policy but due to the pandemic,” the analysts wrote. “The hit to the economy that it created and the change in working and personal lifestyles” during the COVID-19 pandemic helped boost the fundamental case for them, they said.
Sentiment among individual investors has fallen back to pandemic lows, which the RBC equity analysts counted among the “good things” they see in market data. They also pointed to asset managers’ small-cap futures positioning falling near where it bottomed in March 2020 as another good sign. While small-cap futures positioning “isn’t close yet to historic lows” seen around the global financial crisis of 2008 and the earnings recession of 2015-2016, it is close to the March 2020 lows when it “entered net short territory for a very brief period of time,” the analysts said, citing data tracked by the Commodity Futures Trading Commission.
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