SINGAPORE (Reuters) – After a turbulent week on global markets, the worst of the stock market slide may be over, but investors should “keep the reins tight on big directional bets for now”, said Tony Pasquariello, global head of hedge fund coverage at Goldman Sachs.
In a client note published on Wednesday and seen by Reuters, Pasquariello called the week’s market moves since Friday a “global margin call” and explained where markets could head from here.
WHY IT’S IMPORTANT
Investors are struggling to determine whether the broad stock market meltdown fueled by fears of a U.S. recession and the unwinding of yen-funded carry trades is over.
They are also adjusting to uncertainties surrounding impending Federal Reserve rate cuts and the U.S. elections in November.
CONTEXT
This week’s rout surprised markets, with the S&P 500 index falling nearly 6% in just five trading days in August, while Japan’s Nikkei fell 10% in the month. The yen jumped 10% in a month from its lowest level in 38 years.
Goldman said the entire trading community may not be entirely de-risked, with its franchise flows and prime brokerage data not showing much selling, though those moves have signs of significant risk transfer.
QUOTES
Pasquariello: “I find it difficult to comment on the risk/reward profile of the S&P here, so I would keep the reins tight on big directional bets for now and look to make money in the seams of the market.”
“The worst of the forced risk reduction is behind us, but I think the trend is towards continued selling from the trading community.”
“Commodity Trading Advisors (CTAs) and Volatility Control Funds will likely remain in sell mode for a little while longer… I suspect the retail community will lack confidence until the uptrend is clearly reestablished.”
(Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates)
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