However, asset managers overseeing hundreds of billions of dollars in investments said they were more likely to continue selling shares than buying backwith signs of weakness in the US labor market and global consumer trends lowering the bar for market aftershocks.
A change of vision
The mindset of buying when the actions fall, in which investors typically respond to selling by making recovery bets, has been replaced by fear.
“This is not just a big accident of the financial market, as we might have described last week. It’s broader than that,” said Mahmood Pradhan, a former deputy director of the IMF and head of global macroeconomics at the research division of Amundi, Europe’s largest fund manager.
Investors are expected – according to the Bank of America have already reduced their equity positions and have increasingly opted for cash – remain cautious.
Michael Kelly, The multi-asset director at PineBridge Investments, which oversees about $170 billion in client funds, is among those who have reduced their funds’ positions in the stock market and may pull back further.
“It’s going to be very, very volatile over the next couple of months,” he said, adding that a first cut in US rates, expected next month, could come too late to rescue the economy. global growth expectations of investors have fallen to eight-month lows.
Waiting for sale
A weak employment report in USA and a surprise rate hike by the BOXWOOD They promoted the liquidation of the world stock market, while volatility-linked hedge funds and trend-followers headed for the exits and anxious investors flocked to government bonds.
The increase in rates of BOXWOOD wiped out billions of dollars in previously profitable trades in which speculators had borrowed cheap yen to buy higher-yielding assets such as U.S. technology stocks.
According to estimates by JP Morganapproximately 70% of these operations have already been settled. carry trade, But money flows tied to yen-related positions are difficult to measure and Amundi’s Pradhan said the possibility of further sell-offs was making people quite risk averse.
Gerry Fowler, head of European equity strategy at UBS, said hedge fund selling was probably over but traditional investment managers, who move more slowly, often take four to six weeks to adjust their portfolios.
Those fund managers could be next to sell, said Marie de Leyssac, a multi-asset portfolio manager at Edmond de Rothschild Investment Partners, but they would do so based on economic data. While she doesn’t think a brutal downturn in U.S. markets is likely, she wasn’t buying stocks and instead preferred put options, which insure against capital losses by paying out when markets fall.
Pension funds are also expected to sell more equity exposure and move into fixed income, Goldman Sachs strategist Scott Rubner said in a note, adding that the second half of September has been the worst period of the year for Wall Street since 1950.
A turbulent future?
Paul Eitelman, Chief Investment Strategist at USA Russell Investments said another weak U.S. jobs report would have the potential to spark fresh volatility.
The speech of the president of the Federal Reserve, Jerome Powellnext week’s annual Jackson Hole central bank conference and artificial intelligence giant Nvidia’s Aug. 28 earnings report are another of the market’s event risks.
“Volatility makes it difficult to increase exposure even if one thinks it makes sense from a fundamental standpoint,” said Arun Sai, senior multi-asset strategist at Pictet Asset Management.
Money managers’ risk mandates tend to prevent them from buying stocks when prices fluctuate widely.
In that sense, the VIX (.VIX), measure of expected volatility in the S&P 500 Wall Street and its European equivalent (.V2TX), hit multi-year highs last week before easing, but a related index continues to send warning signals.
For its part, the VVIX (.VVIX), another options market indicator that rises when traders expect the VIX itself to be turbulent, is trading above the 100 mark, suggesting the market’s wild ride is not over yet.
“Until we see VVIX come down below 100, we should keep an eye on it. It’s the key metric right now,” said Citi’s head of equity trading strategy Stuart Kaiser.
Source: Ambito
