Analysts said economic growth concerns would be the biggest factor leading to renewed selling pressure. iStock; Rebecca Zisser/BI
JPMorgan says last week’s market sell-off could be just a glimpse of what’s to come.
Analysts said growth concerns were likely to be the next big trigger.
The market has returned to the Goldilocks Zone this week following some encouraging data points.
JPMorgan says the sudden sell-off that caused the stock market’s worst losses in two years may have been a sign of things to come.
Analysts at the bank said the combined concerns of slowing economic growth and the unwinding of carry trades were too big for the market to handle all at once.
But the stock market has since recouped all of its losses and been buoyed by strong economic data this week, leading many on Wall Street to conclude that the incident was an overreaction to a temporary change in the data.
“While many market participants have dismissed the various recent trading disruptions as coincidences or temporary blips, we view this as a dry run for things to come,” JPMorgan analysts said in a Thursday note.
The sell-off in stocks this month came in response to a sharp rise in U.S. unemployment and was fueled by a 12.4% drop in Japanese stocks, the biggest drop since “Black Monday” in 1987. The unwinding of the so-called yen carry trade has emerged as a major factor shaking up global stock markets.
Investors had been borrowing yen at low interest rates in Japan for the past two years, but after the Bank of Japan’s unexpected interest rate hike they rushed to sell to meet margin calls.
Despite the concerns about carry trades, analysts say they are unlikely to trigger further volatility as many investors who were caught off guard this month are unlikely to rush back to the strategy.
“Carry trades could eventually become an issue again, but not everyone will resume such trading given the damage investors have suffered, so it should be more difficult to surpass previous highs,” the analysts said.
“Instead, we see regrowth risks as a more likely trigger,” they added.
Read the original article on Business Insider