Big Money Unloads Stocks as Day Traders Buy in Spiraling Market
The Dow has fallen four straight weeks, the VIX is near 32, recession signals are surfacing and war in Europe is dousing sentiment.
With trouble everywhere, getting a handle on who’s doing what in the stock market is hard, but one overarching trend took shape this week as the S&P 500 slid in four of five days. Professional traders, while keeping a hand in for stock picking, took a broad step back, while individual investors kept the money flowing.
Evidence comes in a report by Goldman Sachs Group Inc.’s prime brokerage, which found that over three days, hedge-fund clients unwound risk at the fastest rate in three months in cumulative dollar terms. At the same time, flows tracked by JPMorgan Chase & Co. showed retail traders bought $4.1 billion in the week through Tuesday, with money sent to S&P 500-linked ETFs more than 2 standard deviations above the 12-month average.
Views on the market always diverge but are doing so now in a particularly violent way, with war, Federal Reserve hawkishness and uncertain economic prospects challenging conviction. UBS Group AG published a scenario analysis citing a machine-learning model that reckons the Russia/Ukraine conflict could send the S&P 500 anywhere from 3,800 to 4,800 — a 26% range — depending on how it resolves.
“The outlook remains very uncertain and more difficult to predict than even during the Covid crisis,” said Seema Shah, chief global strategist at Principal Global Investors. “Many investors are taking a long-term view of the market, particularly for the U.S. where economic implications of the conflict are expected to be relatively contained,” she said. “On the other hand, geopolitical risk is extremely high.”
Declines on Thursday and Friday erased the S&P 500’s gains from the previous week, as Ukraine said Russian forces attacked a nuclear power plant, sparking a surge in oil prices and a rush for haven assets like gold. Volatility has been the only constant: since Jan. 31, the S&P 500 has posted 13 daily moves of at least 1% — six up and seven down.
The Cboe Volatility Index, a gauge of option costs tied to the equity benchmark, has averaged almost 25 this year and closed the last five days above 30. At this rate, 2022 is shaping up as the second-wildest year in the past decade behind only the pandemic year of 2020.
Amid heightened macroeconomic uncertainty, trepidation is building among pros. Hedge funds, which cut their equity exposure to the lowest level in almost two years in February, kept trimming into the new month. On Wednesday, when the S&P 500 rallied almost 2%, clients tracked by Goldman Sachs cut long positions and covered shorts.
