LONDON — The halfway point of the year is when investors take stock, reassess their positions, and decide where to put their money for the next six months. This year, it could be a tipping point.
Emerging markets are under heavy and mounting pressure, credit markets are crumbling, the U.S. bond yield curve is barely 30 basis points from inverting, which may portend a recession. Tech and bank stocks, which led Wall Street’s rally earlier this year, are also wobbling.
Add to that a sharp slide in the Chinese currency and rise in global trade war fears, and it’s not hard to see why some investors might want to throw in the towel completely.
It’s clear that stock market investors are now getting nervous. No corner of the investment universe seems immune from the growing list of concerns, topped now by trade wars.
Top U.S. officials, from Treasury Secretary Steve Mnuchin to Commerce Secretary Wilbur Ross, are appearing regularly on business TV channels, apparently to calm investors rattled by President Donald Trump’s trade rhetoric.
Chinese and Brazilian stocks are in bear markets, India’s rupee is at a record low, and according to Bank of America Merrill Lynch, global equity funds posted their second biggest ever weekly outflow last week (US$30 billion) and U.S. stock funds their third largest redemption ever (US$24 billion).
Of course when sentiment, pricing and flows are so concentrated and one way, the greater the likelihood of a reversal. BAML’s ‘bull & bear’ indicator is “teasingly close to a ‘buy signal’ and contrarian rally in credit & stocks.”
And as long as global growth holds up, then corporate profit growth should continue to hum at a decent clip and financial market volatility should remain relatively contained.
Low volatility provides investors the confidence to put money to