Bank of America has been one of the first to warn about the possibility of turmoil in the stock market in the short term. Investors are believed to underestimate the risks of monetary policy changes by the US Federal Reserve. This may pose grave problems, analysts said. Investors are now focused on the rapid economic recovery and a rise in major stock indices. However, they completely disregard the risks posed by the looming monetary policy tightening. Record stock prices and a possible shift in the Fed’s policy stance have increased the risk of instability shock that the stock market may face in the coming months. Thus, Paul Ciana, the Chief Technical Strategist at Bank of America, sees signals indicating the likelihood of a bearish reversal. The technical outlook across multiple markets is not conducive for risky assets, Ciana noticed.
The expert named the ratio of US Treasury bonds versus the Russell 2000 index that reached a new all-time low in March and has since turned higher as one of the main such signals. "In the past, when this ratio turned up from such low levels, it preceded a period when the bond market outperformed the Russell 2000," Ciana underlined.