Equity trading desks are slapping targets for stocks

Equity trading desks are slapping targets for stocks

We apologize, but this video didn't load.

Click here to see other videos from our team. Try refreshing your browser, or it was a sea of red for equity trading desks around the world, with the rout in the S&P 500 pushing the gauge within a striking distance of its June bottom, which is less than 1 per cent below current levels. The lack of full-blown capitulation may be a sign that the carnage isn't over yet. Big firms like Goldman Sachs Group Inc. are slapping their targets for stocks, warning that a dramatic upward shift in the outlook for rates will affect valuations.

Canada's main stock index plunged Friday, with losses led by energy stocks. The Toronto Stock Exchange's S&P TSX composite index was down by 512 points to 18,490. The Dow was down 60.56 points, the S&P 500 down 60.56 points and the Nasdaq was down 207 points. Treasuries reversed a slide that had earlier sent 10 year yields above 3.8 per cent as the risk-off sentiment took hold. The dollar hit a new record, sweeping aside other currencies. The euro slid to its lowest point in 37 years while the pound fell to its lowest since 2002. The growing gap between interest rates in the U.S. and elsewhere is a concern for traders.

Kenny Polcari, chief strategist at SlateStone Wealth said traders and investors are going to throw in the towel this week in what feels like a sky is falling type of event. When everyone stops saying they think a recession is coming and accepts that it is already here, the psyche will change. David Rosenberg, founder of his namesake research firm, said that the greenback's strength has been unrelenting and will cause a significant drag on corporate earnings. Since the 2008 financial crisis, investors are flocking to cash and shunning almost every other asset class, according to Bank of America Corp. Investor sentiment is unquestionably the worst it has been since the crisis, with losses in government bonds the highest since 1920, according to strategists led by Michael Hartnett.

Gloomy sentiment is often considered a contrarian indicator for the U.S. stock market, under the belief that extreme pessimism may signal brighter times ahead. Equity losses may accelerate even further from here before the current bear market ends, according to Ned Davis Research.

Since 2009 and early 2010, equities are the least attractive relative to corporate bonds and Treasuries, according to different iterations of the so-called Fed model, which compares bond yields to stock earnings yields. This signal is getting attention from investors who are familiar with the idea of looking to other markets for similar or better returns. Gina Martin Adams said the S&P 500 s breakdown since the August peaks solidifies the downward trend since the bull market apex in early January. She wrote in a note, The breakdown below 3,900 support leaves little for the index to grasp at on its way to testing the June lows.