A Flash in the Pan?

Good Morning Ladies and Gentlemen

The end of last week, the beginning of this week, and also yesterday finally showed some positive market moves. However, the question remains if this is it or if we have further potential. Since I do not know the answer, I am looking at some sentiment indicators, and maybe they can hint at what direction the market will go.

Bank of America (BofA)

To come straight to the point, the BofA Global Research Fund Manager Survey for October sees macro and investor capitulation complete.

This is it, then?

Unfortunately, it is not all that easy. Because central bank capitulation has only just begun, and lack of fund outflows prevents the “big low”. The BofA research has drawn up a list of criteria for the so-called “big low”. The list comprises eleven points, of which the first six result from the fund manager survey. In total, BofA sees seven of the eleven points fulfilled. Just not enough for a “big low”, even if already quite pessimistic.

Macro capitulation

The BofA survey shows that 72% of fund managers expect a weaker global economy. No real surprise, you may think, and yet 72% is quite a number. Nevertheless, this expectation has already been pretty low for the last eight months. Financial markets have taken their time to adjust. Today, I may say, the current levels somewhat better reflect that pessimism.

Investor capitulation

The cash level of global asset managers is at a two-decade high of 6.3% (the previous month’s 6.1%). The last time the cash share was higher was in April 2001.

So what is missing for a more positive outlook?

We need a statement from Fed Chairman Jerome Powell that gives confidence to market participants that inflation is slowly but surely getting tamed and interest increases will stop eventually or at least perform at a lower speed. Then, with 60%, we still see a relatively high share of equities as part of BofA’s assets under management, and last, but not least, funds have so far hardly seen significant outflows.

Research

Once again, and as you all probably know, I am not a big fan of average research issued by the average commercial bank. Much of it always goes in the same direction, always late cyclical and nicely wrapped in consensus-driven statements, and not to forget ESG-compliant. Nevertheless, The investor crowd gobbles this stuff up; why I do not understand because the platitudes from some of these reports could, at times, easily overpower the Swiss alps.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li
Many thanks, indeed!

I wish you an excellent start to the day, a great weekend, and above all and still, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li