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BAML: 63 percent of MSCI’s global index now in a “bear” market

posted onOctober 26, 2018

Financial markets have been hit hard recently with world stocks heading for their fifth straight week of losses and 63 percent of MSCI’s global index now in a “bear” bracket.

A range of factors such as fears that the world growth is slowing, trade tensions, concerns over Italian government finances and Brexit risks have dampened investor sentiment. 

Bank of America Merrill Lynch (BAML) data -based on analysis of numbers from flows tracker EPFR Global covering the week to Wednesday - showed 1,742 of 2,767 global stocks had fallen 20 percent off peaks, putting them into a so-called bear market, Reuters reported.

In emerging markets, 919 out of 1,150 stocks or 80 percent, were in the “bear” bracket, while in New York the figure was as high as 1,164 out of 1,899 stocks - 61 percent of the total, the news agency said.

Meanwhile, Wall Street looks to close out the week with more than 43 percent of the S&P 500 in a bear market, having fallen at least 20 percent from 52-week highs according to CNBC.

Despite the recent global stock market sell-off, BAML analysts said that it was too soon “to flip from bearish to bullish”.

“Big picture explanation - it’s late-cycle and Fed is tightening. Cyclical explanation - peak positioning, peak profits, peak policy stimulus = peak prices in 2018,” the bank’s analysts added.

But noting that 70 percent of world stocks had been in bear territory in 2011, BAML analysts said if the selloff turned out not to be a harbinger of recession, it could signal an excellent entry point in the coming weeks or months. 

Mohamed El-Erian, chief economic advisor at Allianz, told CNBC on Friday it was "not surprising" to see a recent spike in market volatility as the Fed has been "very insistent" with its plan to raise interest rates this year and next — without saying "a single soothing word" during the 
recent bout of selling.

The U.S. central bank has already hiked rates three times this year, and investors have priced in a fourth hike in December.  Higher rates make borrowing more expensive and restrict the flow of credit to companies and individuals, major shifts likely to be a drag on stocks.

At the start of the month, US President Donald Trump criticised the Fed's plan to continue hiking interest rates calling the central bank “crazy”. He also said its rate increases are “too aggressive,” and “a big mistake.”

“The problem that I have is with the Fed. The Fed is going wild. I mean I don’t know what their problem is but they are raising interest rates and it’s ridiculous,” Trump told Fox News. “The problem in my opinion is Treasuries and the Fed. The Fed is going loco and there is no reason for them to do it and I’m not happy about it.”

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