The correction in U.S. stocks in August ended a five-month winning streak for U.S. stocks.
Because of the previous enthusiasm before August, many investors may have increased their bets, but they may encounter a big pullback in August.
“August curse lasts” or “September ghost”?
In recent days, some Wall Street strategists said that if the downturn continues in August, it may be a buying opportunity rather than the beginning of another painful decline.
David Kostin, chief U.S. equity strategist at Goldman Sachs, he believes that if the U.S. economy continues to show signs of a soft landing, investors will have more room to increase their holdings of stocks. And the Hedge funds' leverage levels also indicate their ability to increase purchases, while a decline in mutual fund cash holdings could also signal increased underlying demand.
Kostin said in a note on Monday, "We see room for U.S. investors to further increase their equity exposure," "If the U.S. economy continues on the path to a soft landing, we believe the near-term decline in equities will be short-lived."
Max Kettner, chief multi-asset strategist at HSBC, said that it is not the time to buy aggressively, there are still some tests ahead, but a continued decline will be a signal to increase exposure.
Meanwhile, Citigroup's Scott Chronert thinks the same, he said late last week that a pullback in the $S&P 500(.SPX)$ to 4,200-4,300, the level seen in late May to early June, would create an "attractive return point" for long-term and tactical investors . As of Monday's close, the index was around 4,399.77 points.
Doug Ramsey, chief investment officer at Leuthold Group, said in a note that even if stocks face deeper losses, the possibility of the $S&P 500(.SPX)$ hitting record highs in the coming months cannot be ruled out as the index returned to the peak in early 2022 in late July. Such a strong recovery from a bear market is a "bear market killer."
"There are a lot of buyers who have missed a good chunk of this rally and they're going to get in, so I don't think there will be a doomsday sell-off in September and October," "There are people on the sidelines, including strategists and portfolio managers, who are ready to get in as soon as they see a correction in the stock market," said Jay Hatfield, chief executive of Infrastructure Capital Management.
Of course, given the high degree of uncertainty about the trajectory of the economy, there are still many who believe stocks have room to move lower.
Hedge funds and other large speculators narrowed their net short position in $S&P 500(.SPX)$ futures to the lowest level in 14 months, according to the latest data from the U.S. Commodity Futures Trading Commission released on Friday. Analysts said this month's decline could be a welcome break from the sharp gains that have driven valuations to lofty levels.
Adam Turnquist, chief technical strategist at LPL Financial, also sees that range as the next major support level and a "reasonable rebound point" given money market funds' cash levels are at record highs.
Meanwhile, HSBC's Kettner is waiting for the market to overcome some key hurdles, notably the Jackson Hole annual meeting of central banks scheduled to begin Thursday, which he expects could spur another decline in stocks.
"But we will use this renewed sell-off to further expand our exposure to equities, particularly U.S. equities," he said in a client note on Monday.
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