The surprising lack of panic in the US stock market, as measured by Wall Street’s so-called “fear index”, is keeping some investors from spotting a bottom despite a major sell-off in equities, Reuters writes.
It should be noted that since 1990, the Cboe volatility index (or “fear index”) has averaged 37 when the market was at the bottom, compared to its last level of around 32.
Some investors believe this means stocks are yet to see the frightening sell-offs that sometimes accompanied past market lows, even though the S&P 500 has already fallen nearly 20% from its all-time high, a level that confirms a bear market. .
According to Chris Sidial, co-founder of The Ambrus Group, “The mood around is negative, but there is no real fear and a sense of panic. The only thing you don’t see is capitulations.”
Many investors believe that market volatility is likely to remain high as several factors combine: the hawkish policy of the US Federal Reserve, soaring inflation and geopolitical uncertainty caused by the situation in Ukraine.
According to analysts at Deutsche Bank (ETR:DBKGn), now the total position of investors in shares has fallen to the lowest level since the sell-off due to COVID-19 in 2020.
Meanwhile, the positioning of options in the S&P 500 shows that the market is very well immune from the downside, according to Brent Kochuba, founder of analytics service Spot Gamma. He believes that with defensive positions, investors are in no rush to buy more put options even when the market is down.
“Now people are holding on and hoping for a recovery,” said Patrick Kaiser, portfolio manager at Brandywine Global Investment Management. “However, to mark the end of the sell-off, the market needs a “moment of resounding failure and pain,” he added.
– Materials from Reuters were used in the preparation
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