Smart Money Expect another Downtrend in The Stock Market

(Fri, 26 Jun 2020). Investors are preparing for a steep downturn in the U.S. stock market. Hedge funds see too many risks to re-enter into equities. Smart money investors are bracing for a fresh wave of volatility in the stock market.

Multi-billion dollar institutions expect a significant downtrend in the U.S. stock market. Uncertainty around the pandemic and its potential impact on the economy are rattling investors. Federated Hermes’ Phil Orlando expects a 10% drop in equities. High net-worth investors are preparing for a steep downturn in the U.S. stock market. Hedge funds see too many risks to re-enter into equities with confidence.

Phil Orlando, chief equity market strategist at Federated Hermes—a $2.3 billion investment firm—says the June “swoon” may continue for a few weeks and emphasizing the need for diversification. Orlando’s sentiment echoes that of JPMorgan, whose strategists said the dynamic of the U.S. stock market would likely change.


Another 10% Drop Is Possible, Strategists Say

High profile investors anticipate a correction in the stock market for two reasons: pension funds taking profit and a resurgence in the pandemic. Since the first week of May, President Trump pushed for the reopening of the economy. At first, Wall Street seemed jubilated by the Trump administration’s aggressive approach.

Then, more data related to the virus started to emerge. According to the U.S. Centers For Disease Control and Prevention (CDC), the U.S. recorded 34,313 new infections on June 23, 2020. The curve of infections, which was seemingly slowing down, began to increase once again. Uncertainty surrounding the pandemic places significant pressure on the stock market because it directly affects the unemployment rate.

If jobless claims surge again, it could have negative implications on the economy. Combined, these forces would cast a dark shadow over the stock market. For that reason, Orlando said he believes the U.S. stock market could pull back by 10% in the next six weeks.


IMF Cuts Forecast Again

The International Monetary Fund (IMF) says it expects a 4.9% drop in global economic growth this year. The pandemic has slowed down business activity and productivity across the world, the IMF said. The U.S. stock market has seemingly priced in a smooth reopening of the economy and global economic recovery. If the bearish projections materialize over the next few weeks, the probability of a significant market pullback can sharply increase.





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