The Real Reason and Reality of why Stocks Are Selling Off
Investors are still far too bearish.
In the chart below, you’ll notice that stocks have yet to even test support (green line), let alone their bull market trendline (blue line). And already we are seeing calls for a crash.
The media claims that stocks are falling because a second wave of COVID-19 is coming. The reality is that the US is performing more tests. Actual deaths attributed to COVID-19 is down 90% since the April peak. This can be seen clearly in the exhibit below.
So, why did stocks fall yesterday?
I’ll tell you why. It’s because pension funds are reallocating money from stocks to bonds. Goldman Sachs noted days ago there would be $76 billion worth of stock selling this week. The sell-off was one of the most advertised and obvious in history!
Pensions try to maintain certain ratios between their stock and bond holdings. Because stocks have rallied so much over the last two months the stock allocations are too high — which requires pensions funds to sell some of their stocks and buy bonds in order to rebalance.
THAT is what is happening in the markets today, NOT some kind of COVID-19 panic.
Editor, Money & Crisis