Stocks may suffer a ‘final leg lower’

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There is a large disconnect between how investors are feeling and how they are acting

Over the last two years, US households bought 11 times more stocks compared to the prior four years so equity exposure remains high.Bottom-fishing investors have been on the lookout for signs of capitulation recently. With each market fall, the question is: are we there yet?It’s true that some contrarian signals, such as “very depressed” investor sentiment, have fired.

Another sentiment measure, the Investors Intelligence survey of equity newsletter writers, is at levels unseen since the global financial crisis. Globally, the percentage of stocks trading above their long-term 200-day moving average has plunged to levels often seen near major bottoms. The problem, says Barclays, is there is a large disconnect between how investors are feeling and how they are acting.

Over the last two years, US households bought 11 times more stocks compared to the prior four years. Fund inflows have continued in 2022 so equity exposure remains high. Fund flows usually turn negative during turbulent markets. There is, says Barclays, potential for “a final leg lower”.

 

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