Wall Street records mask growing fear in the markets
Professional speculators have also started to limit the risks. In the last days of June, hedge funds reduced their long positions while hedging their short positions. Together, their risk-free activity reached its highest level since late January, according to prime broker data compiled by Goldman Sachs. However, with net leverage greater than 90% of the time over the past year, the positioning is hardly bearish.
People are really nervous about anything that could see a resurgence of cases or a return to some of the stops. It’s just a reminder that this Covid is still here and could raise its head again. “
Chris Gaffney, President of Global Markets at TIAA Bank.
While the list of concerns is long, there are plenty of reasons to stay invested. Growth may be peaking, but corporate profits are expected to rise further until at least 2023. Fed policymakers have shown a hawkish trend, but say they are far from raising interest rates.
For Liz Ann Sonders, chief investment strategist at Charles Schwab, the market outlook remains bleak.
“Did the pandemic interrupt the cycle that was in play in the economy and the market until February of last year, or did it end a cycle and start a new one? Sonders said in an interview on Bloomberg TV. “We’ll start to get answers to that in the next few months as we move beyond base effects in terms of economic data and inflation data.”
Investors don’t wait to find out. With rising inflation, companies considered to be better equipped to pass costs on to their customers without hurting their business are all the rage. Their stocks, as tracked by Goldman, have beaten a cohort with weak pricing power last month since March 2020, the start of that bull market.
Meanwhile, pondering a potential economic slowdown triggered a return to depreciated growth stocks, a style dominated by cyclical stocks. The Russell 1000 Growth Index outperformed its value counterpart in June the most in two decades.
The reopening of trade that has taken place since the vaccine rolled out in November has subsided as the delta variant spreads from Europe to Asia. A basket of Goldman stocks on the verge of a return to normal economic activity has just suffered its worst month since last July relative to the basket at home.
“People are really nervous about anything that might see a resurgence of cases or a return to some of the closings,” said Chris Gaffney, president of global markets at TIAA Bank. “It’s just a reminder that this Covid is still here and could raise its head again.”