Equity bulls are seeing signs of a rally down.
(Bloomberg) — The S&P 500’s latest leg is missing one important ingredient: inflows from big money managers. This is a good development for further rally betting.
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As the benchmark index soared to an all-time high in January, institutional investors cut their stakes amid uncertainty over President Donald Trump’s policies and the Federal Reserve’s interest rate path. Data from Deutsche Bank AG showed that the overall position between regulatory and discretionary investors fell to a two-month low. And commodity trading advisers have cut their long-term stock exposures after the market crash in August, according to Goldman Sachs Group Inc. Trade Desk Fair Compilation Information.
On the flip side, such skepticism looks good to stock market bulls because it means more dry powder to buy stocks down the road, if the biggest fears don’t materialize. While political uncertainty has weighed heavily on investor sentiment, inflation is easing and the fourth-quarter earnings season is off to a strong start.
“The stance does not reflect the current rally in risky assets and may cause some FOMU, or fear of material underperformance,” Scott Runer, Goldman Sachs global markets manager and strategist, wrote in a note to clients on Wednesday. “We have a comfortable technical window for the next one month,” he added.
Money managers’ caution comes as the S&P 500 hovers near a record high, while investors evaluate corporate earnings and the latest policy announcements for clues about the stock market’s next move.
The coming week will be critical for Wall Street, with investors awaiting the latest interest rate decision and reports from tech giants Microsoft Corp., Tesla Inc. and MetaPlatform Inc. The S&P 500 jumped above 6,100 for the first time. A time on Wednesday, before the end of the future.
If the benchmark index rises or remains flat, commodity advisers could put between $15 billion and $30 billion into stocks next month, Runner wrote in a note to clients.
A break in volatility can be seen as a tailwind for the stock market as another strategic strategy, volatility-controlled funds, typically increase exposure when volatility declines.