Investors shouldn’t take much solace from Tuesday morning’s slight rebound, says Nomura. They are warning the next sell-off could resemble a crisis-level plunge like the one that followed Lehman Brothers’ collapse.
This view is much more catastrophic than the rest of Wall Street with most firms predicting a stock market correction (down 10%) at most and likely just a slight pullback. Nomura is basing its view on data showing hedge funds fleeing the market and said more are set to exit when their algorithms are triggered by rising volatility.
Stocks are set to rebound from their worst day of the year on Tuesday as China stabilized the yuan, which many believed was used as a weapon in the trade war with the U.S. The Dow Jones Industrial Average dived 767 points on Monday, its sixth largest point drop in history, after China allowed its currency to breach a psychological level and also halted purchase of U.S. farm goods. The Cboe Volatility Index, AKA Wall Street’s “fear gauge,” swung to the highest in 2019 on Monday.
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