Fund managers’ allocations
As we discussed in the previous article, fund managers are cautious on the stock market (DIA) right now despite its YTD (year-to-date) rally.
Another example of this cautious behavior can be found in fund managers’ sector allocations. These investors are typically long on defensive sectors such as REITs, utilities (XLU), and healthcare (XLV) and short on stocks in general and industrials (XLI) in particular.
A net 25% of surveyed respondents expect global growth to weaken over the next 12 months, 22 percentage points higher than last month.
Expectations from the Fed
According to 39% of the investors surveyed by Bank of America Merrill Lynch, the central bank’s easing of its policies has been the main driver of the improving macroeconomic sentiment. Among the investors surveyed, 55% believe that the Fed will continue to hike interest rates (TLT), while 38% believe that the hiking process is over.
The Federal Reserve started its latest two-day meeting on March 19. The markets don’t expect a rate hike at the meeting. Instead, they expect a further dovish narrative from the Fed, with either one or no rate hikes expected in 2019 and one expected in 2020.
Markets’ YTD performances
YTD as of March 19, the markets (SPY) (QQQ) are up in the double digits, with NVIDIA (NVDA), Advanced Micro Devices (AMD), Micron (MU), General Electric (GE), and Microsoft (MSFT) up 27.2%, 26.2%, 24.6%, 36.9%, and 14.1%, respectively. The change in the Fed’s narrative from hawkish to dovish has been the main driver of the market’s significant rally this year.