The markets are still in the throes of altitude sickness. The reality is that the debate about the discomfort generated by the valuation of a large part of the assets has never left the market and is gaining momentum as soon as there is room for it. The discomfort is most intense when it comes to technology valuations and despite the Nasdaq rally on Friday, this fits with the latest Bank of America/EPFR Global fund flows data. In the week to last Wednesday, globally, money funds garnered $16.3mm which added to the $68mm inflows they received in the preceding week, contrasting with weekly outflows of $1.6mm in tech funds. The latter delivered their worst performance since December 2018.
That said, it is worth recognising that investors are not really turning their backs on stocks, but rather are reconfiguring their positions as equity funds took in $14.7 billion thanks to the attractiveness of banks and the materials sector. Then, the altitude sickness is causing investors to become even more selective in terms of their portfolio holdings, giving more weight to cyclicals while not losing sight of the recurring issue of inflation. (…)
In this respect, the president of the New York Fed said that “I just don’t think now is the time to take any action.” In the same vein, Fed Vice Chairman Richard Clarida flaggged in recent article that the extraordinary monetary policy measures in the US would have provided “crucial support to the economy in 2020 and continue to contribute to what is expected to be a solid economic recovery in 2021.”
However, the dominance of the dovish thesis at the Fed is compatible with some balance sheet adjustments, confirming that as of today, Monday 7 June, the Fed will start selling its positions in 16 corporate debt ETFs ($8.6 billion). This is part of its decision to unwind $13.8 billion in ETFs and bonds under the Secondary Market Corporate Credit Facility before end- year. Corporate bond sales’ turn will come after the summer, in both cases proceeding in a “gradual and orderly” manner.
