The S&P 500 is declining, but not too scared

The escalation of the conflict in the Middle East, the acceleration in producer prices in December, and the Fed’s intention to keep rates high for a long time are forcing US stock indices into a correction. This combination of factors paints a stagflationary picture for the US economy, which is bad for shares.

Now, usually when we see this kind of uncertainty, broad stock indices tend to sell off quite quickly. But US stocks have been surprisingly resilient. Yes, the VIX fear index did spike above 35 in the early days of the conflict, but volatility has since pulled back to February levels, with only a slight uptick more recently.

Nevertheless, the Bank of America survey showed asset managers’ optimism regarding US equities has slipped to a six-month low. Institutional investors are increasing the proportion of cash in their portfolios and cutting their economic forecasts. They cite geopolitics and inflation as the main risks and are less concerned about an artificial intelligence bubble.

The FxPro Analyst Team

#USSPX500

6590.6 -0.41%

#USNDAQ100

24258.7 -0.64%

#US30

45905.92 -0.48%