A mass exodus of money, an $11 trillion wipeout, and the worst losing streak for global stocks since the 2008 financial crisis. The bad news is that it may not be over yet.
The selloff in the MSCI ACWI Index has dramatically lowered valuations of companies across the US and Europe, but strategists ranging from Michael Wilson at Morgan Stanley to Robert Buckland at Citigroup Inc. expect stocks to fall further amid worries of high inflation, hawkish central banks and slowing economic growth, especially in the US.
Money is continuing to leave every asset class and the exodus is deepening as investors rush out of names like Apple Inc., according to Bank of America Corp. Historically significant technical levels for the S&P 500 show the index has room to fall nearly 14% more before hitting key support levels, while the share of companies that have so far hit a one-year low is still a far cry from the number during the economic growth scare that slammed stocks in 2018.
“Investors continue to reduce their positions, particularly in technology and growth stocks,” said Andreas Lipkow, a strategist at Comdirect Bank. “But sentiment needs to deteriorate significantly more to form a potential floor.”
Here are some key metrics showing the potential downside for stock markets.
Falling Fast
The S&P 500 is still about 14% above its 200-week moving average, a level that’s previously been a floor during all major bear markets, except for the tech bubble and the global financial crisis. Strategists at Canaccord Genuity say there could be further declines on Monday on forced margin selling after yet another red week for the US benchmark.
Stressing Out
For all the recent declines — the S&P 500 is down more than 13% from its high on March 29 — stress indicators also aren’t at levels seen during comparable slumps. Fewer than 30% of the benchmark’s members have hit a one-year low, compared with nearly 50% during the growth scare in 2018 and 82% during the global financial crisis in 2008.
Getting Defensive
Defensive stocks have been in demand as the specter of slowing growth hammers economically sensitive cyclical sectors. The Stoxx 600 Defensives Index is flat in 2022 versus a 15% drop for cyclicals, and strategists at Barclays and Morgan Stanley expect that trend to continue. At UBS Wealth Management, Claudia Panseri sees pricing for a “mild recession” in the cyclical-versus-defensive relative performance.