Bottom-fishing in US stocks? Traders at Goldman Sachs and JPMorgan Chase both believe "technically close to a rebound, but…."
Goldman Sachs stated that the cash levels of fund managers have fallen to the lowest since 2010, indicating that there is limited capital available for bottom-fishing in the market. Goldman Sachs also warned that the pessimistic narrative surrounding the U.S. stock market remains difficult to dispel: last Friday, Bessenet said, "The market and the economy have become addicted to government spending, and we are about to enter a 'withdrawal period'," suggesting that the U.S. stock market has not fully priced in the potential policy shift that may come
Recently, Goldman Sachs trader Mark Hibbert stated that the U.S. stock market is currently experiencing a "buyer's strike," which will be a significant long-term issue for bottom fishers.
Currently, the U.S. stock market generally believes that the total leverage exposure of hedge funds remains at a high level, but in fact, the market outlook may be even more concerning—cash as a percentage of total assets is hovering at a 20-year low.
A Bank of America survey shows that professional fund managers in February were "bullish, long on stocks, and short on everything else," with their optimism primarily based on expectations of strong economic growth in the U.S. and interest rate cuts by the Federal Reserve. This optimism has led to the fund's cash level dropping to its lowest since 2010, at just 3.5%.
Limited Funds Available for Bottom Fishing in the U.S. Stock Market
Hibbert pointed out that in the context of market frenzy and fluctuating sentiment, the significant decline in fund managers' cash levels means that there are limited funds available for bottom fishing in the market. Additionally, this situation has maintained the "sell signal" triggered in the U.S. stock market last December, which has now lasted for three months.
According to analysis from JPMorgan's trading department, signs of panic first appeared in the U.S. stock market yesterday during the ongoing sell-off that has entered its third week. Elan Luger, global cash risk trading head and co-head of single-stock volatility trading at JPMorgan, stated:
"We are finally starting to see real deleveraging in the U.S. market, which is the bottoming signal we need."
Based on today's futures trends, the S&P 500 index has fallen about 8.5% from its peak, approaching the historical depth of a correction.
So, what does this mean? Hibbert believes that from a technical perspective, the U.S. stock market has entered the 8th-9th inning (close to the end), but the pessimistic narrative surrounding the U.S. stock market remains difficult to eliminate:
The tariff issues are well known, and if I were to bet, I would lean towards believing that a compromise will ultimately be reached rather than a full-blown trade war.
However, last Friday's comments from Bessenet (that "the market and economy have become addicted to government spending, and we are about to enter a 'withdrawal period'") had a more negative impact, suggesting that the U.S. stock market has not fully priced in the potential policy shift that may come, and the market is only down 8% from its historical peak.