Shares in this article
indices in this article
• Many individual investors active
• Another wave of sales threatens
• The bull market remains alive
The corona pandemic caused a historic stock market crash worldwide in March. But thanks to gigantic aid measures by the government and the central bank, the US stock market has since been able to recover. At the beginning of September, the NASDAQ Composite technology index, but also the S&P 500 index, which reflects the broad equity market, reached new record highs again.
This rally was driven in particular by the tech giants. Packs of investors pounced on these stocks because they believed that technology companies would benefit most from the current economic situation. But then there was talk of a bubble and the record series – especially in technology stocks – was suddenly thwarted. Market experts spoke of an overdue correction.
Unusual market activity
If you believe Julian Emanuel, the equity and derivatives specialist at the financial services provider BTIG, then equity investors are facing another major setback. As he explained to the US broadcaster “CNBC”, the current market activity shows that individual investors are still investing excessively in the current high flyers: “Instead of fear being priced into the options market, there is ‘Fear of Missing Out’. How as early as August, the price for out of the money (OTM) calls was still showing a premium over the price of out of the money puts, “said the expert. “It’s a very unusual situation,” he comments.
“Fear of Missing Out” (FOMO) describes the phenomenon that investors are dominated by the fear of not being able to participate in an upswing. So investors don’t want to regret later that they didn’t venture back to the stock market in time.
As Julian Emanuel further explained, the current situation signals an exuberant mood on the stock market: “That tells us that the public is still very involved – as are the large institutional investors.”
Unusually severe setback expected
Now that the NASDAQ and S&P 500 have recently drifted away from their record highs reached on September 2nd, Emanuel believes that the shares are now vulnerable to an unusually severe setback.
He estimates the NASDAQ could fall 15 to 20 percent below its all-time high. The technology index is currently around eight percent below this level (closing date September 16, 2020).
The stock market expert also anticipates a sharp decline in the S&P 500 because some companies with extremely high market capitalization, including Apple, also have a heavy weight in the index. Here he predicts a fall of 10 to 15 percent below the all-time high of September 2. The index is currently a good five percent lower (closing status September 16, 2020).
Emanuel assumes that this second wave of sales will start before the presidential election on November 3, 2020. Because “Markets tend to be uncomfortable with uncertainty”.
Bull market intact
But despite this negative forecast, the expert sees the bull market as intact. He expects the market to stabilize again and to start a healthy rotation towards the currently ailing, economically sensitive stocks by the end of next year at the latest.
Finanzen.net editorial team
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