What rebound? These 2 charts suggest the recent stock sell-off has further to go
- The recent market correction saw investor bearishness spike. But RBC Capital Markets analysts think there's room for pessimism to grow even more intense.
- The decline in US stocks after the Federal Reserve's emergency Tuesday rate cut is "a good reminder" investors are wary of the coronavirus's economic risks, the analysts wrote in a Wednesday note.
- The firm offers one chart that shows asset managers' net long stock positions remaining near July 2019 highs - implying that there's plenty of room for further outflows.
- The analysts pointed to a second chart showing investor bearishness remaining below the peaks seen after past emergency cuts.
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Despite a widespread stock rebound on Wednesday, the market's recent plunge into correction territory still hasn't come close to finding a bottom, according to new research from RBC Capital Markets.
All major US equity indexes climbed more than 1.5% at intraday highs, paring some of the losses seen Tuesday after the Federal Reserve's emergency rate cut failed to alleviate investors' coronavirus fears. The whipsawing action followed gains of roughly 5% for US stocks on Monday.
Tuesday's lack of positive response to the Fed cut serves as a "good reminder" that investors are still wary of the outbreak's economic toll, and several critical factors suggest bearishness is far from its peak, RBC analysts led by Lori Calvasina wrote Wednesday.
She cites data showing fund manager sentiment that's "still in euphoric territory" despite a recent decline. Calvasina also notes that bearish readings remain significantly below past highs, even though they've jumped.
RBC argues that until these two measures weaken further, the stock market is still at serious risk of more selling. Here are two charts detailing the analysts' hypothesis and the extent to which market pessimism can still grow:
