Money managers betting on a year-end rally to cap a blockbuster year got a big shock this week which also threw their plans for 2022 into disarray.
As a potentially disruptive virus variant darkens the economic outlook, market players are touting defensive buffers to cross-asset strategies just as hawkish signals from the Federal Reserve further undercut risk appetite.
HSBC Holdings Plc and Barings Investment Institute are among those recommending tried-and-trusted hedges including bonds and long dollar positions, while cooling on risky stocks and junk-rated corporate debt.
“This rising tide shifting all boats narrative that we’ve seen year to date, that is likely to reverse,” said Swetha Ramachandran, a fund manager at GAM Investment Management. “We will start to see much more polarization between companies that generate cash that are profitable today versus those that are promising jam tomorrow.”
That market divergence was on display this week as S&P 500 stocks with weak balance sheets fell at the fastest pace in a year versus those with the healthiest financial ratios, according to baskets compiled by Goldman Sachs Group Inc.
Still with dip buyers out in full force this week, few strategists see good reason to remain risk-off for long, and much remains unknown about the omicron risk.
“This is a wild card, but it’s mostly a wild card for the near term,” said Mislav Matejka, an equity strategist at JPMorgan Chase & Co. “Even in a bad scenario, this could be a good entry points to buy into the first half of next year as the market repositions for the new redesigned vaccines upside.”
Here’s a snapshot of views:
Agnes Belaisch, managing director and chief European strategist at Barings Investment Institute
Recommends long-dated government bonds as the Fed taper flattens the yield curve, quality equities including technology