Bottom-fishing investors have been on the lookout for signs of capitulation recently. With each market fall, the question is: are we there yet?
Probably not, cautions Barclays.
It’s true that some contrarian signals, such as “very depressed” investor sentiment, have fired. Since 1988, there have been only 15 occasions where retail investor sentiment, as measured by regular American Association of Individual Investors (AAII) polls, has been as miserable as it is now. Over the next six to 12 months, stocks rebounded on all but one occasion (2008 was the exception).
Another sentiment measure, the Investors Intelligence survey of equity newsletter writers, is at levels unseen since the global financial crisis.
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Globally, the percentage of stocks trading above their long-term 200-day moving average has plunged to levels often seen near major bottoms.
The problem, says Barclays, is there is a large disconnect between how investors are feeling and how they are acting.
Over the last two years, US households bought 11 times more stocks compared to the prior four years. Fund inflows have continued in 2022 so equity exposure remains high. Fund flows usually turn negative during turbulent markets. There is, says Barclays, potential for “a final leg lower”.
