The enthusiasm has even prompted hedge funds to hold their most concentrated wagers on US equities in 22 years with most popular bets in megacap tech. Mutual funds also increased their exposure to the sector in the third quarter, according to Goldman Sachs Group Inc.
Of those that capitulated include a pool of rules-based money known as commodity trading advisers. After sitting on the sidelines in late October, CTAs bought more than $60 billion worth of global equities in the last two weeks, according to Nicolas Le Roux of US Group AG, who expects flows to continue though at a slower pace.
Not everyone is buying. Marija Veitmane, senior multi-asset strategist at State Street Global Markets, is still concerned about recession risks and inflationary pressures, particularly on the services side. Americans feel it too. US short-term inflation expectations climbed to a seven-month high while longer-run price views remained at levels not seen since 2011.
“Current economic data still does not justify the current aggressive policy normalization,” said Veitmane. “Thus, rates need to stay higher for longer, which will most likely push us into recession which means that earnings expectation are too high. So, no we are not backing this rally.”
To Peter Chatwell, head of global macro strategies trading at Mizuho International Plc., the fact that ratey cuts may be coming is no sustainable reason for elated market sentiment.
“If the Fed is cutting rates because of a recession, this is very unlikely to be supportive of stocks,” he said. “It seems that stocks are in a sweet spot which will require a major earnings increase to allow this level to be maintained.”
This article was provided by Bloomberg News.