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Is the market plunge over? Not before the ‘quiet gorilla’ moves, warns BofA

Is the recent pushback in stocks a bear market rally or has the downtrend in the markets now reversed? The first is warned by Bank of America, which predicts a new big plunge, as unlike institutional investors, households have not sold shares yet. Unlike what had happened in the great stock market dives of the past.

The largest share of investments in Wall Street shares does not belong to hedge funds or large multinationals, but to households. Which takes on particular significance given that the market’s “quiet gorilla” didn’t run away in the first half’s big plunge, suggesting according to Bank of America that equity values ​​haven’t bottomed out yet.

In particular, households own equity assets in the US with a total value of approximately 38 trillion. dollars, through shares, mutual funds and ETFs, of which 5.9 trillion. dollars were placed over the past two years, according to data from BofA Global.

Thus, US households now own about 52% of Wall Street. And as historical data shows, in the three major US market sell-offs since 2000, stocks bottomed out only after significant household selling activity.

BofA’s research team notes that the common refrain at investor meetings in July was: “everyone is already bearish, so maybe we can start buying.” However, they choose cash, credit and stocks in order.

Or at least until households, the “dominant factor,” decide to move and sell, BofA pointedly notes.

Now, however, the “index of indexes,” the S&P 500, has recovered 15% from its mid-June lows, even recording its best eight weeks in more than a year.

At the level of technical analysis, as analysts point out to Reuters, the critical point for the general index of the American market is 4,231 points (closing Thursday at 4,207), which if secured will have covered half of its fall from the historic high of January and according to the analysts we will be able to talk about an upward trend.

“After World War II, every time the S&P recovered 50% of its losses from bear market territory, even though it retested the local low, it never went lower,” notes Sam Stovall, chief strategist at CFRA Research.

At the same time, positive for the market are also messages from equity funds, which showed net inflows into the market of $7.1 billion in the week ended August 10.

Wall Street stocks saw total inflows of $11 billion, the highest level seen in eight weeks, according to Bofa.

Even so, the US bank’s “bull-and-bear” index continues to remain at “maximum bear” for the ninth consecutive week. Something that, as Bank of America analysts typically point out, rarely translates into a “buy” signal.

Source: Capital

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