Three of the biggest banks in the US are revealing what they believe is next for the S&P 500 after the stock market index witnessed a major sell-off to start the year.
Starting with JPMorgan Chase, analysts at the largest US bank say they don’t believe tariff-related headlines are the catalyst behind the recent marketwide correction, reports FOX Business.
According to a team led by Nikolaos Panigritzoglou, the $5.5 trillion S&P 500 correction was most likely driven by two types of investment firms adjusting their positions rather than investor concern about a potential recession.
“In our mind, the most likely culprits are equity hedge funds and in particular two categories: equity quant hedge funds and equity TMT sector hedge funds.”
Quant hedge funds typically use data and code to make investment decisions, while TMT sector hedge funds primarily invest in firms related to technology, media and telecommunications.
JPMorgan says it is within the realm of possibility that the S&P 500 is close to carving a local bottom.
“And if US equity ETFs (exchange-traded funds) continue to see mostly inflows as they have thus far, there is a good chance that most of the current US equity market correction is behind us.”
Meanwhile, Bank of America (BofA) says the S&P 500 has more downside potential before printing a price floor.
“Sentiment/positioning/price signal equity correction not quite over; we say buy SPX at 5,300 once BofA FMS (fund manager survey) cash surges above 4%, HY (high-yield) spreads approach 400 basis points, equity outflows accelerate.”
As for Morgan Stanley, the financial services giant says the S&P 500 is now hovering at an area where it could ignite tactical rallies.
“We stand by our call from last week that 5,500 should provide support for a tradable rally led by cyclicals, lower quality, and expensive growth stocks that have been hit the hardest and where the short base is the greatest.”
Late last year, all three banks predicted that the S&P 500 would soar to even greater heights this year. BofA saw the index climbing to 6,666, while both JPMorgan and Morgan Stanley said the stock market could surge to 6,500.
At time of writing, the S&P 500 is trading at 5,662 points.
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