The current round of weakness in economic data, combined with inflationary pressures, are not normally considered positive drivers for Markets. The recent reversal has seen a significant reversal in aggressive positioning.
The NAAIMExposure Index has dropped back to levels that have aligned with short-term corrections. This is not a big surprise given the massive inflows into the market this year alone which have now exceeded $1 trillion.
This clearly fuelled a rally in global stocks, including record highs on Wall Street which reflected optimism that the FOMC would continue to drive markets higher. As inflation concerns become more entrenched asset prices will likely become increasingly volatile.
It is these concerns that perhaps led the Fed to begin tapering in November. By any measure, it is clearly obvious that inflation itself is way above the Fed’s stated 2% target.
The primary role of most active Fund Managers is to manage risk/reward in relation to the Market. Whilst it may not be entirely predictive, the adjustments that fund managers make to their portfolio’s gives us an insight into their positioning.
They may have decided not to participate in the Market over the Holiday period with a view to putting money to work when volume returns and volatility falls early in 2022.
