"Discounted Luxury Bag Purchase Time You Wanted"...Institutions 'Pick Up' While Retail Investors 'Panic Sell'

Hedge Funds Overly Concerned About Recession
"Sharp Stock Price Drop Is a Buying Opportunity"

During the recent crash in the U.S. stock market, while individual investors were panic selling individual stocks, institutional investors were actively buying them.

On the 6th (local time), Bloomberg reported that hedge funds purchased the most stocks since March during the recent sell-off when novice investors were dumping shares. According to JP Morgan, institutional investors net bought $14 billion worth of stocks during the recent period when the S&P 500 index fell by 3%. Bloomberg added, "The months-long selling spree by hedge funds has reversed."

The reason institutional investors aggressively bought the plummeting stocks is that they judged the recession concerns triggered by the recent U.S. employment shock to be excessive.

Max Gokhman, Senior Vice President at Franklin Templeton, commented on the institutional investors' buying spree, saying, "It's like buying a luxury handbag you wanted at a 10% discount."

There are also assessments that the U.S. economy remains strong. According to Bloomberg Intelligence, the Q2 net earnings of S&P 500 companies increased by 12%, and over 80% of the companies reporting earnings exceeded market expectations.

Bloomberg further explained that historically, sharp stock price drops have represented buying opportunities. According to Goldman Sachs, since 1980, after a sharp decline of 5% from the previous peak, the market rebounded 6% over the following three months.

On this day, the New York Stock Exchange succeeded in rebounding around 1%, indicating a mood of easing fears about a U.S. recession.

However, Citi pointed out in a client memo that the full recession scenario has not yet been priced into stock prices and recommended cautious stock purchases.