Thursday, June 30, 2022


Has the global stock rally gone too far?

The global stock rally that continued from December to the new year is likely to pause, according to a growing number of analysts.

The analysts are citing indicators that include valuations and placements in futures and options to suggest that stocks may have been ‘stretched’ too much. The estimate comes after the MSCI All-Country World Index has risen by about 1.4% since the beginning of 2020, having previously risen 24% year over year – the highest annual increase since 2009.

‘There is still much to be worried about,’ Andrew Lapthorne, global head of quantitative research at Societe Generale, wrote in a note on Monday. ‘Valuations are a big risk looking ahead.’ According to him, the forward ‘stock price / earnings’ index for US stocks that are expected to rise above the market average have reached levels that have appeared for only 8 months over a 10 year period.

Sundial Capital Research analysts have found another warning sign in recent days: options markets are heavily focused on ‘calls’ versus ‘puts’ in the US market this month.

JPMorgan Chase & Co. analysts are among those who point out the’potential sensitivity to negative shocks, even though they note that the broader image remains bullish on equities.

The speculative holdings on US stock futures by asset managers and leveraged funds ‘are at even higher levels than they were at the beginning of 2018,’ the CFTC said.

But the broader investing public may also be worried. The latest Investment Trust survey of the American Private Investors Association has shown that investor pessimism about the direction of the stock market in the short term is at a six-week high.

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