Strong earnings shown by financials, health care, and consumer staples companies on October 17 helped fuel a short rally, where these three market niches outperformed the S&P 500 for the day. However, there is still a lot of negative sentiment in the markets, with market participants looking to the Federal Reserve (Fed) and its fight against inflation for more ques on where markets might move. Similarly, the sentiment on stocks and global growth among fund managers, a survey done by Bank of America (NYSE: BAC), showed full capitulation. Namely, the survey showed that cash levels are at their highest since April 2001, above the long-term average of 4.8%.
Another indicator
The survey by Bank of America (BofA) highlighted another market indicator, which can help pinpoint a bottom or a near bottom in the bearishness. The valuation and valuation difference in forward Price-to-Earnings (P/E) ratios between the Russell 2000 and the Russell 1000. The small-cap Russell 2000’s P/E is at 11, the lowest since 1990, while the Russell 1000 is at 15.5, in line with long-term averages. However, the difference between the two is now at 0.71, well below the historical average of 1.01.
No guarantees
While historic signals can offer a good orienting device in the markets, they can hardly predict the exact point when to buy or sell stocks. Though negativity in the markets seems to be at its peak, tracking signals for the next few weeks before deciding if the rally will have legs would perhaps be the most prudent thing for investors. Buy stocks now with Interactive Brokers – the most advanced investment platform Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
