New data shows that since the Federal Reserve announced its intention to cut monetary policy, hedge funds have reduced their exposure to risk. But retail traders are investing in stocks by offering support to leading benchmark indices.
New data compiled by experts at brokerage firm Goldman Sachs and published by Bloomberg showed that hedge funds are bailing out of stocks. As a result, net leverage, a measure of risk appetite that takes long and short positions into account, fell to its lowest level in about a year earlier this month.
The numbers are comparable to the Bank of America survey. The financial institution recently reported that hedge funds are cutting their leverage, dumping more than $ 2 billion in early December. This is the highest rate since April.
Whether it was the S&P 500 or small-cap stocks, the exits were widespread, and the reasons for this decline in stocks also vary.
Goldman Sachs said some financial managers are hinting at collecting tax losses, while others want to take their 20 percent of profits and run away. Many also point to a shift in monetary policy by the US central bank, which is trying to combat 39-year high inflation.
When the Wall Street giants released the data, Fed Chairman Jerome Powell dropped the term “interim” when referring to inflation and signaled an accelerated cut in quantitative easing and mitigation that the institute used during the pandemic.
Despite exceptional rallies for major US indices from the beginning of the year to the present, they are on their homestretch in 2021.
Over the past month, the Dow Jones Industrial Average has lost about 0.6 percent. The S&P 500 fell about 1.5 percent. The Nasdaq Composite Index fell more than 5 percent and the Russell 2000 Index fell about 7 percent.
But while hedge funds are selling, retail investors are taking advantage of the downturn.
Chair traders buying stocks
While investors have expressed concern about the Omicron option and its impact on the global economic recovery, individual traders are less wary. The latest data underscores the fact that cabinet investors are sticking to their strategy of buying stocks.
Individual investors hit a one-day record on December 1, according to data compiled by Vanda Research. During that session, they invested $ 2.22 billion in the stock market, buying up large-cap tech companies such as Apple and Uber Technologies. and exchange-traded funds (ETFs) that reflect indices, including the SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1.
Vaccine makers like Pfizer have also caught the attention of retail investors, the researchers note.
Armed with their zero-commission mobile shopping apps, the study’s authors argue that these investors were quite aggressive in buying during the sharp sell-off, resulting in a notable influx of retail sales.
“Retail investors have bought every minor drop in stocks this year, protecting the S&P from double-digit selling,” said analysts Ben Onatibia and Giacomo Pierantoni.
Financial experts warn that this may not always generate huge profits comparable to the memes craze that started earlier this year, when there was an incredible surge at AMC, GameStop and a host of others.
Goldman Sachs said a basket of the top 50 traded stocks held by individual investors fell 7.8 percent in the week ended December 3 and lost 5.8 percent to more preferred mutual funds.
A look at the stock market in 2022
So will hedge funds in the financial markets buy back next year? Will retail investors keep their investment tactics after the 2020 coronavirus crash?
The Wall Street Titans have met their expectations for 2022 and many market analysts are looking forward to a better year.
Bank of America has released a new report, compiled by several Global Research economists, that focuses on the threats to the global economy in the next calendar year.
The report says price inflation, the Omicron variant, climate change, and supply chain disruptions are top factors that industry watchers will be watching.
“Inflation will cool off from current highs, but remain well above the target, leaving the Fed open to action,” economists wrote. “While 2021 has been a history of oversupply and oversupply, we think 2022 will be a period of rebalancing, albeit gradually. This should partially ease the heat of inflation, but not quickly enough, as a result of which the Fed will raise rates three times, starting in June and continuing on a quarterly basis. ”
For certain areas of the stock market, Fidelity has selected high quality dividend stocks and low volatility stocks.
“Currently, I see opportunities in the financial, energy and utilities sectors. There is pretty good variance, which means there are many differences in how different companies in these sectors are valued, ”said Ramona Perso, portfolio manager at Fidelity.
Charles Schwab also predicts a favorable year for the financial market, as he expects inflation to slow down, the pressure from the debt ceiling to be removed by early 2023, and the Fed will potentially not be as aggressive on interest rates as expected.
“Overall, the yield curve message appears to be that the Fed does not have as much room to raise short-term rates as its forecasts suggest,” the financial services company said.
At the end of a two-day meeting of the Federal Open Market Committee (FOMC), officials agreed to complete the central bank’s asset purchase program by March, and the dotted line indicates multiple rate hikes in 2022.