The markets aren’t looking too hot at the moment, and investors largely have the Fed, Omicron, and end-of-year tax loss harvesting to blame. However, investors are melodramatic (maybe rightfully so) as they wonder if this is the beginning of a prolonged contraction. After all, just 20.3% of stocks are above their 50-day Simple Moving Average (SMA), which is not a piece of information you hear and say: “Wow, I am feeling soooo bullish.” 👎
Three banks have leaned in to the recent action in stocks, all with their own two cents on the matter. Naturally, the most detailed commentary comes from JPMorgan, which believes that an end-of-year short squeeze rally is likely to boost markets. In a report published on Dec. 17, analysts cite “aggressive shorting” in retail equity position and cryptocurrency holdings which have “shown resilience” in recent weeks. JPMorgan expects a small-cap, value, and cyclical rally in January.
Goldman Sachs, which has been historically bullish, expects things to stay bullish. In fact, JPMorgan and Goldman Sachs are the most bullish banks on the S&P 500’s performance in 2022. Analysts at Goldman are not phased by Omicron, although they are taking a closer look at the Democrats’ failure to pass BBB.
Other banks issued their own bytes: Bank of America stayed steadfast to its belief that the stock market will trade flat next year. Morgan Stanley said it expects next year to come at a small loss for investors. Oh, and Wells Fargo simply said that “the probability of a correction is rising” (uhhhhh, no duh?)
Ultimately, nobody knows what to expect. But, it makes sense that banks are clearing their books given the timing of this capitulation. We’ll be keeping a close watch to see who’s right.