Stock markets are yet to see full capitulation from investors, raising the risk of more declines in the short term, according to Sanford C. Bernstein strategists.
Bernstein’s comments stand in contrast with the findings of the Bank of America Corp.’s July global fund manager survey, which signaled that full capitulation has been reached after investor allocation to stocks plunged to the lowest since October 2008 while exposure to risk assets dropped to levels not seen even during the global financial crisis.
“We may already have seen capitulation from bond funds,” Bernstein strategists wrote. “Significant selling in the second quarter has been followed by two weeks of net purchases so far in the third quarter.” The broker’s short-term indicator of investor sentiment is neutral, although the longer-term indicator is at extreme pessimistic levels, a divergence which they said “suggests that there may be strong returns over a period of a year or more, but in the short term there may be further downside to equity markets before a tactical capitulation level is reached.”
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