Published September 15th 2022

Daily Brief - Investors VERY underweight after CPI apocalypse

TLDR

Yesterday the market panicked after CPI rose 0.1% instead of falling 0.1%.

Investors’ reaction shows how the Fed remains pivotal for markets in 2022 and beyond. And this pessimism has practical implications, as asset managers are heavily underweight equities. As growth improves and inflation falls, this can lead to sharp rebounds in equities. Only the Fed can spoil the party.

global growth pessimism

Why are investors underweight equities?

Investors hold grim views on the economy - as grim in fact as 2008, judging by BofA’s Fund Manager Survey.

Their gloom was driven primarily by the bearish performance of all major asset classes in H1’2022 - including fixed income, usually a safe haven in economic hard times.

Why do I care?

The allocation of long-only “slow money” can be very important for the future direction of markets.

Asset allocators manage 100x more money than hedge funds and short-term traders, and their positioning can drive markets for quarters when it reaches extremes.

Currently investors are underweight equities in aggregate. And as growth rebounds and inflation cools off, the chances of a snap back in equities are considerable, like we’ve seen in the last few days.

‘Ware of the Fed

The Fed remains a key issue for market participants to ponder. With increasingly hawkish saber-rattling across all major central banks, policy makers might drive the economy into the ground in an excess of zeal.

In conclusion?

At the cost of sounding like a broken record: evidence is mounting that Q4 markets will remain range bound.

If you are value- or yield-seeking, buying the dips can provide good entry points. And if you trade actively, it might make sense to fade the peaks.

Idea Spotlight: PayPal

Valuations indicators for PYPL:NASD reached a recent low and historically, this led to a median increase in price of 16.79% over the following 3M. TOGGLE analyzed 6 similar occasions in the past to produce the median projection and this insight received 5 out of 8 stars in our quality assessment.

Synchrony Financial CFO said the store-card company would be a “natural partner” for PayPal Holdings Inc. as the payments giant looks to offload $6.2 billion in loan receivables.

paypal price history

Daily Brief - Investors VERY underweight after CPI apocalypse

Button to Twitter
Button to Facebook
Button to Linkedin

Button to Twitter
Button to Facebook
Button to Linkedin