The S&P 500 is declining, but not too scared
The S&P 500 is declining, but not too scared
The escalation of the conflict in the Middle East, the acceleration in producer prices in December, and the Fed’s intention to keep rates high for a long time are forcing US stock indices into a correction. This combination of factors paints a stagflationary picture for the US economy, which is bad for shares. On the other hand, since World War II, the S&P 500 has never entered bear territory if it took more than 40 days to fall 5% from a record high. Recently, it took 46 days to reach this key threshold.
Now, usually when we see this kind of uncertainty, broad stock indices tend to sell off quite quickly. But US stocks have been surprisingly resilient. Yes, the VIX fear index did spike above 35 in the early days of the conflict, but volatility has since pulled back to February levels, with only a slight uptick more recently.
Nevertheless, the Bank of America survey showed asset managers’ optimism regarding US equities has slipped to a six-month low. Institutional investors are increasing the proportion of cash in their portfolios and cutting their economic forecasts. They cite geopolitics and inflation as the main risks and are less concerned about an artificial intelligence bubble.
By the FxPro Analyst Team
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