WALL STREET SPEAKS: Investors Ready to Get Back in the Game, but Indices May Shake in October

On Wall Street, there are voices suggesting that the September correction has not scared off retail investors, who may be preparing to return to the markets. However, experts also warn of increased volatility due to the upcoming midterm elections in the U.S. and macroeconomic factors.
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Christian Stracke: It’s Supply and Demand, Not Inflation

The rise in yields (i.e., the drop in prices) of government bonds is not due to rampant inflation, claims Christian Stracke, CEO of bond market giant Pacific Investment Management Co. (Pimco).

He points to the results of memory chip producer Micron. Its annual capital expenditure forecasts suggest that bonds are becoming cheaper because more of them are being issued. Companies related to the artificial intelligence (AI) sector have recently been releasing an increasing number of debt securities.

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Treasury Bonds Instead of Deposits? Read how to take the first step in safe investments -- "It’s all a matter of supply and demand for capital, and much less related to fears of uncontrolled inflation expectations," said Christian Stracke on Bloomberg TV.

The expert also notes that long-term inflation expectations among consumers have remained around 2.3% throughout the year, indicating faith in the central bank's ability to control inflation in the longer term.

-- "This is a very healthy signal for the current financial market," Stracke believes.

Scott Rubner: The Fourth Quarter Favors Comebacks

Scott Rubner, head of equity and derivatives market strategy at Citadel Securities, assesses that retail investors are ready to return to the stock market after a noticeable cooling of sentiment in September. Although October may be characterized by fluctuations, this month creates better conditions for entering the market and replenishing equity portfolios.

-- "The market enters the fourth quarter with a 'clean slate' and greater opportunities to rebuild positions," Rubner told Bloomberg.

Favorable conditions arise from position adjustments by institutional investors and moderate valuations of companies. In September, the volume of stock trading fell to 94% of the average of recent years, reaching the lowest level this year. Since June, activity in the stock market has decreased by 26%, and trading in derivatives has shrunk by one-third.

-- "September brought a drop in activity that we expected. The fourth quarter is meant for re-engaging," summarizes the strategist.

Lacy Hunt: Fed is Falling Behind

Lacy Hunt, an 84-year-old economist, along with colleagues from Hoisington Investment Management, has bet on rises in the U.S. bond market for over 30 years. Currently, only two positions remain in their managed fund: 10-year U.S. Treasury bonds and short-term debt securities. For a fund that has bought U.S. bonds for decades to profit from falling yields, this is an extremely unusual situation.

According to Hunt, the bond market boom he has participated in since the 1980s was based on globalization, capital surplus, and cheap energy. Now all these factors have reversed. The economist admits he missed the moment when this happened.

-- "It was very difficult because it meant we held onto our positions for too long," Hunt stated in an interview with Bloomberg.

Assets managed by the firm shrank from $5 billion in 2020 to just under $2 billion last year. This year, portfolio restructuring helped avoid losses that would have resulted from the recent drop in bond prices. However, Hunt does not see any chance for a quick normalization of the situation.

-- I believe we are in the early stages of further significant inflation growth -- points out the expert. -- The Fed is not keeping up with the market situation -- he adds.

JPMorgan Chase: We Recommend Positioning for Volatility

Strategists at JPMorgan Chase, the largest bank in the U.S. by assets under management, warn of a likely increase in volatility in the stock market as the midterm elections in the United States approach. So far, markets have treated them as a non-event, but analysts warn that this may soon change.

-- We advocate positioning for a higher level of the VIX index (known as the fear index -- ed.) ahead of this event, considering how much potential there is for this indicator to reflect historical fluctuations before elections, or to rise in the event of a tightening of other key macroeconomic risk factors -- claim the bank's analysts.

Among other risk factors, experts mention interest rates, fuel prices, and shocks related to the development of artificial intelligence.

Citigroup: ETFs Will Drive Bitcoin Growth

Analysts at Citigroup, one of the largest banks across the ocean, have updated their forecasts for the largest cryptocurrencies -- bitcoin and ether -- for the next 12 months. The experts' expectations for the former indicate a level of $113,000, which represents about a 30% growth potential. For ether, the forecast is $3,028, which is 11% higher than the current valuation.

Although the bank raised both forecasts by a similar degree, the recent 53% rally in ether leaves it with less room for further increases. Citi analysts link the growth in the cryptocurrency market to potential demand from fund managers. Capital flows in cryptocurrency-related ETFs recently reversed. The value of assets managed by them fell to $5.8 billion by July of this year, but by mid-September, this trend changed to an inflow of around $800 million.

Citi describes these flows as slower but more sustainable. According to analysts, the bullish forecast is more favorable for bitcoin, as cryptocurrency ETFs are more often linked to this currency than to ether.