Analysis shows this kind of depressed technical breadth has coincided with previous market bottoms -- with the exception of 2008.
Not everyone is confident a rally is imminent. U.S. equity valuations remain elevated compared with history and with previous economic downturns, keeping some investors wary of increasing exposure while the Fed continues to raise rates.
“We expect a policy overtightening that causes recessions,” Wei Li, global chief investment strategist for BlackRock Inc. said in a note on Monday. She has a tactical underweight stance on equities, because “recession risks still aren’t factored in.”
According to Nomura’s quant analyst Yoshitaka Suda, supply-demand dynamics among speculative investors are setting up U.S. equities for more softness, with macro funds building up short positions right after the latest U.S. inflation data. Macro funds “will stay to the short side in U.S. equities at least until the release of employment data” on Oct. 7, Suda said in a note.
--With assistance from Sagarika Jaisinghani and Lynn Thomasson.
This article was provided by Bloomberg News.