Shares are on tear this year – but not everyone is impressed.
Several investors have kept their enthusiasm hardened even since the market rose from a correction. While global stocks have increased 11% this year, $ 46 billion has been deducted from mutual funds, according to Bank of America Merrill Lynch.
This dynamic has created something that some strategists have called a "flowless" rally where stocks had the strongest start of a year of 30 years, but investors took money out of mutual funds. In other words, their aversion to shares was not synchronized with other forces that ran the market higher.
According to Alain Bokobza ̵
For what keeps the market floating despite the disbursement of funds, stock purchases remain one of the reliable drivers for this beef market's gains. The corporate tax reform ran stock purchases for a record last year, and 2019 is already in the process of exceeding that milestone, according to BAML.
However, many investors do not share the same enthusiasm about the future of the share price.
"Risk aversion is now very clear, and portfolios are already hedging too many risks," Bokobza said in a recent note to clients.
He continued: "Cash positions have also become very large, as the outlook for a US recession in 2020 does not perform well for risky assets."
Read more : Paul Krugman, Rick Rieder, and 47 more of the brightest minds on Wall Street reveal the world's major charts
An American recession next year is not illuminated, according to other strategists at SocGen. In a separate note, Arthur van Slooten and his team set the yield curve and their proprietary indicator of economic news coverage as two indicators suggesting that the next downturn may come faster than later.
This risk helps explain why some investors have been sidelined by this collection and even withdrawn money from mutual funds. SocGen noted that many of them turn to cash instead of risky assets; It seems they are doing the widespread conversations to keep more dry powder and benefit from higher cash dividends.
On the bullish side of the rope rope, Bokobza pointed out that monetary policy is still loose, fear of a full-fledged trade war between the United States and China may recover, and the United Kingdom can reach a Brexit agreement.
Read more : 2 notorious recession signals fall into the danger zone and they have some Wall Street strategists convinced that a breakdown is approaching
Bokobza does not appeal to investors to dump risky assets in their whole because he expects some of the storm clouds that have accumulated will soon be clear. However, he recommends a cautious "barbell" approach, with three strategies that will help investors maintain exposure to stocks without being completely burned. They are outlined below, and directly quoted from him:
- "We do not agree with today's momentum and keep the weight of stocks fairly low at 40%, as we held onto our position at the end of last year. up our stock index targets compared to last year, we still see drawbacks to the summer of 2020.
- "We reinforce our allocation to assets that help to search for returns, now the first priority that drives investors redistribution, clearly forced by the very bold asymmetry of global central banks.
- "We have a strong focus on risk management, adding assets with resilient properties and / or those providing decor relationships (read: volatility reduction) to our award."