Wall Street seems to have cleared the way. The S&P 500 has come out of the bear market after rising more than 20% and the question asked in the big investment banking firms is what the position should be in the coming months: whether to risk more or perhaps furnish the sails to see how events unfold.
Risk assets performed well last month thanks to the rise in the US debt ceiling and anticipation of a pause by the Fed. In this environment Marko Kolanovic, head of stock exchange at JP Morgan, says that although many improved than positioning is bearish, disagrees: “With the recent decline in market volatility, investor positioning has strengthened.”
The bank believes that the storm has not cleared, far from it. “Although the recent resilience of the economy may delay the onset of a recession, he believes that most of the lagged effects of last year’s monetary tightening have yet to be felt and, ultimately, a recession is likely to be necessary. on for inflation to return to the target”, he says.
Therefore, It Maintains A Defensive Asset Allocation And Considers That The Profitability Ratio Of Equities Remains Poor, Given The Disconnection Reminded Of Equities And Fixed Income, The Elevated Probability Of Recession In The Next Quarters, The High Rates, The liquidity restriction, high elevations and the breadth of the market, which remains small.
there are many bass players
Several analysts believe investors remain bearish overall, and one chart often cited to illustrate this is speculative positions in S&P 500 futures, currently at record short levels. However, the entity believes that this image is misleading and does not indicate net short positions but hedges against potentials.
“First, we observe that short positions in speculative non-commercial (speculative) futures are negatively correlated with order flow (see here), indicating that these short positions in speculative futures are actually operating a function of liquidity and place that liquidity seekers are actually buying,” says Kolanovic.
Second, the increase in speculative short positions appears to be due to an increase in leveraged funds short positions, but this did not coincide with a decline in the market beta of hedge funds or CTAs, or any pressure on the drop in equity financing levels. “This also suggests that incremental short positions in futures will be used to facilitate new long positions or in relative value trades,” the expert adds.
looking at credit
In this way, the stock market considers that the true “painful operation” of the market is the rupture driven by cyclical value values, exactly the same as the one that took place on Friday a week ago, but we do not see that it will be confirmed. “We think yields will fall again, pricing power is waning, labor market signals are more mixed beneath the surface, any stimulus from China is unlikely to be significant, and PMIs could converge soon. , but with services descending towards the manufacturing sector in the second semester”, they state.
Bonds lost ground – and yields rose – last week due to rate hikes in Australia and Canada, as well as the tough position of the Fed and the ECB, which have not been priced in by the markets. In the United States, monetary policy is determining everything, just like in Europe. So on the credit front, US high-yield spreads held steady and yields rose ahead of the CPI and Federal Reserve meeting this week.
“In terms of emerging market sovereigns, we remain underweight this region, despite the recent rally in spreads, as most future outcomes are likely to lead to spread widening,” Kolanovic explains. . Furthermore, he says that the weaker momentum in Europe and China should continue to point to the dollar, especially if US growth surprises remain positive.