Nomura's shocking statement: The next threat to the global stock market may come from the speculative forces slowly exiting the US stock market

According to the Wisdom Finance APP, international financial giant Nomura Securities stated on Monday that speculators who are "reluctant to exit" their long positions in US stocks are posing the next "major threat" to the global stock market. Speculators who are unwilling to suffer large short-term losses and are seeking a slow exit from the US stock market may be the next threat to the global stock market. On the same day, investors' strong concerns about a US economic recession and geopolitical tensions in the Middle East triggered a sell-off of risk assets, leading to a sharp decline in global stock markets. The stock markets in Japan and South Korea experienced multiple trading halts, making it a "Black Monday" for the stock market.

The escalating sentiment in the market regarding a US economic recession has undergone a dramatic change. In July, the US employment figures sharply slowed down, with the unemployment rate unexpectedly rising to 4.3%, triggering the "Sam Rule" with a 100% accuracy rate in predicting an economic recession. Additionally, the significant contraction in the ISM Manufacturing PMI last week far exceeded market expectations, collectively fueling a comprehensive upgrade in market sentiment towards a US economic recession.

Since 2024, the strong rally in global stock markets has been largely driven by the increasing expectations of a "soft landing" for the US economy. Therefore, the louder the doubts about the "soft landing" expectations and the stronger the calls for an economic recession, the greater the possibility of a significant stock market correction.

Goldman Sachs on Wall Street raised its expectations for a US economic recession on Monday, increasing the likelihood of a US economic recession in the next year from 15% to 25%. Goldman Sachs' latest forecast indicates that the Federal Reserve will cut interest rates by 25 basis points in September, November, and December. Furthermore, Goldman Sachs stated that if their forecast is wrong and the August employment report is as weak as July's, there is a high probability of a 50 basis point rate cut in September. In comparison, JPMorgan and Citigroup have adjusted their forecasts, with both institutions expecting the Federal Reserve to cut rates by 50 basis points in September and November, respectively.

On Monday, the global stock market sell-off, including the tech-heavy Nasdaq Composite Index, further entered a technical correction zone, and the inversion of the yield curve between 2-year and 10-year US Treasury bonds, which had not occurred in over two years, was reversed. The end of the 2-year/10-year yield curve inversion often signifies the early stages of an economic recession based on historical data.

"Stock God" Warren Buffett's Cash Reserves Hit Historic High, Market Panic Quickly Rises

Amid the significant pullback in US stocks, Warren Buffett, known as the "Stock God," drastically reduced his stake in Apple, causing a stir in the global market. Buffett's latest portfolio changes in the second quarter further fueled panic in the market under the rising recession expectations, leading to a widespread sell-off of stocks and other risk assets.

Buffett's investment strategy, long regarded by the market as the "Oracle of Omaha," relies on his incredibly strong ability to predict the capital markets. Throughout his entire investment career, Buffett has almost entirely avoided all stock market disasters on a global scale.

The latest quarterly report released by Berkshire Hathaway, under Buffett's leadership, shows that by the end of the second quarter, the company's stake in Apple had decreased from approximately 789 million shares in the first quarter to about 400 million shares, a reduction of nearly 50%. Since July, Berkshire Hathaway has also sold approximately 90 million shares of US banks, cashing out about $3.8 billion in total. Therefore, combined with Buffett's recent significant sale of US bank shares, this series of actions of accumulating cash in the high-interest-rate environment in the US may be interpreted as the "Stock God" seemingly betting on a US economic recession Especially bank stocks tend to underperform during economic downturns. Expectations of interest rate cuts usually reflect Federal Reserve officials' concerns about economic slowdown or potential recession. The banking industry is highly cyclical in the economic cycle, as an economic slowdown may lead to a decrease in loan demand, an increase in default rates, and other issues that can affect the overall performance of banks. "Stock God" Buffett may believe that with the rising expectations of interest rate cuts, the risks in the banking industry may increase as the economy falters, necessitating a reduction in exposure to bank stocks.

"Buffett may think that we may be heading into an economic recession, so he is raising cash in the high-interest rate environment in the United States now, so that he can later buy back some stocks of fundamentally high-quality companies at lower prices." Jim Avad, Senior Managing Director at Clearstead Advisors, said.

After massive selling, Berkshire Hathaway's cash reserves surged to a new historical record of up to $276.9 billion, selling more stocks than buying for seven consecutive quarters. Buffett has once again sent a signal to the already anxious market: there will be cheaper entry opportunities in the future, not now.

The downward trend of the S&P 500 index may not have stopped yet, and the speculative forces in the US stock market that are reluctant to exit may pose the next threat to global stock markets

"It is worth noting that some hedge funds focusing on speculative profits have been reducing their long positions in the US stock market through the CTA investment strategy since at least this year, and as long as one of the benchmark indices of the US stock market, the S&P 500 index, remains below 5550 points, this reduction process will continue, indicating that the downward trend of the S&P 500 index is unlikely to stop." Yoshitaka Suda, Quantitative and Macro Strategist at Nomura Securities, said in a latest report released on Monday.

The S&P 500 index closed at 5186.33 points as of Monday's US stock market trading. Nomura strategist Suda, those controlling funds tracking the volatility index (VIX index) also seem to be lagging behind in reducing net long positions in the US stock market.

"Compared to other major asset classes, CTAs still hold a relatively large net long position in the US stock market, which seems to make them increasingly lag behind the overall market trend." Suda said, and released the following chart.

"Stock investors seem not to welcome the downward trend in market interest rates, but out of concerns about the reasons behind the rate cuts, namely the specter of an economic recession possibly looming, they continue to sharply pull down the market," Suda said.

He stated that for some controlling funds tracking volatility, given the recent continuous rise in the Chicago Board Options Exchange Volatility Index (VIX index), there is still "considerable room" for overall adjustments in the US stock market exposure. Therefore, those "reluctant to exit" long positions in US stocks may trigger the next wave of panic selling in global markets "If they continue to reduce the risk asset allocation exposure until the exposure matches the actual level of the VIX index exceeding 20 points, we may see additional net selling trends, roughly equivalent to the massive selling scale these hedge funds have been conducting since mid-July," he wrote in the report. During Monday's U.S. stock trading session, the VIX index surged to +60 at one point, then fell back to +34, ultimately closing near 38 points on Monday.

Mike Wilson, Chief U.S. Stock Strategist at Morgan Stanley, has put forward his latest views on the market outlook. He stated that the market may remain fragile in the short term until the market receives more positive growth data or the Fed provides more liquidity support in its policies. He predicted that neither of these will materialize rapidly in the short term and noted that the S&P 500 index is about 10% higher than its fair value