Nomura Research discusses its market call and recommends closely following markets over the next two or three days.
"Unless global macro hedge funds and other fundamentals-based investors pile in to buy a perceived dip within the next few trading days, there is a strong likelihood that systematic selling pressure will gain the upper hand, in which case not only US stocks but global stocks as well could be in for a classic August volatility shock.
In our baseline scenario, we expect selling of equities by CTAs and other such market participants to not go beyond the clearing out of long positions; we would not expect these investors to start staking out new short positions unless the US economy were to suffer an obvious loss of momentum. Afterwhich, we see S&P 500 being taken down into the 2,850-2,900 range," Nomura argues.
"If the latter half of August brings increasingly clear signs that the pick-up in US economic indicators is running out of steam, there could be a global run of stock-selling by CTAs and fundamentals-oriented investors alike. In that event, we believe there would be a plausible tail risk of US stocks sinking into crisis-driven market conditions in September comparable to those that prevailed at the time of the Lehman crisis. If this were to happen, the Fed, having fallen behind the curve, would presumably be dragged into making an emergency rate cut of at least 50bp," Nomura adds.