5./15 West
Analysts at Piper Sandler said they remain net sellers of financial assets amid the prospect of an emergency rate cut by the Federal Reserve between meetings.
“The subsequent (economic) data or ongoing financial risks do not point to any improvement in the global economy,” Benson Durham, head of global policy and asset allocation, said in a research note. “Market reactions over the past few sessions have risen to a level that calls for an immediate policy response.”
He said there were “no convincing signs that trading has become distressed”.
The MSCI USA ETF (PBUS) remains overvalued (about 6%) relative to fundamentals, and options on the S&P 500 (SP500) remain cheap, Durham said, adding that options traders may be undervaluing the odds of another correction.
In addition, according to GARCH models – a statistical model in which error variance is thought to be serially autocorrelated – stock return volatility should begin to moderate, but remain elevated over the next 12 months.
However, even though the major ETFs fell after the July FOMC meeting, year-to-date returns for the S&P 500 (SP500), Nasdaq 100 (QQQM), and Russell 2000 (IWM) remain high (11.61%, 9.52%, and 2.97%, respectively).
“Moreover, trading has remained orderly, and losses have not yet led to the kind of ‘fire sale’ and credit crunch that might prompt a central bank response,” he added.
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