According to Morgan Stanley, individual investors buy all drawdowns in the stock market, despite macroeconomic problems.
The bank noted a strong correlation between investor purchases and downturns in the stock market: “Retail investors are still pursuing a ‘buy the dip’ strategy and are forcing many institutional investors to, who share our fundamental views, follow them".
Fears about economic recovery have grown in recent months. Investors worried about high inflation, supply disruptions and early completion of incentive policies FED. Moreover, the stock index S&P 500 is near the all-time high.
Stocks are overvalued, count at Morgan Stanley. Inflation and logistics problems increase costs and reduce business profitability. Investors ignore the risks, what support stock market.
“Companies are revising their forecasts, but not so fast, to cause a strong drop in broad indices. As long as investors keep buying, indices will stay at the top, even if fundamentals deteriorate ", the bank said.
Morgan Stanley also noted the divergence of consumer sentiment and the stock market: “Consumer confidence remains fragile, despite their tendency to buy back drawdowns. This discrepancy between markets and trust will resolve over the next few months.”.
One of the consumer sentiment indexes is calculated by the University of Michigan in the USA.. This index shows, how consumers assess their financial situation and the economy of the country as a whole.
Due to the spread of the COVID-19 delta strain, inflation and slower wage growth, the sentiment index fell to a ten-year low. Since April, the index has dropped by 19%, although S&P 500 added over the same period 13%.