With the tame October CPI , traders have taken a December rate hike by the Federal reserve hike off the table, reducing the odds to the low single digits. Paul McCulley, PIMCO’s former chief economist, called the big move “rational exuberance” and said on CNBC that “the Fed is comfortable declaring that policy is sufficiently restrictive, and that’s a big deal because they’re finished tightening, and the next move will be an ease.” Markets are now acting like a soft landing is indeed attainable: “I think the pain trade is being short the market,” Mark Lehman, CEO of Citizens JMP Securities, told me, noting that this news “adds fuel to the widening of the market.” Which begs the question: how many of those investors who have piled into Treasurys and money market funds begin to feel FOMO [Fear of Missing Out] and start moving money into stocks? 2023: The year of chasing yield Investors historically chase after stock performance, but 2023 has been the year of chasing after yield performance. This year, the combined assets under management at money market funds grew to a record $6 trillion. There have been large inflows into short-term Treasury funds like the Vanguard Short-Term Treasury ETF (VGSH) and, surprisingly, even into long-term Treasury ETFs like the iShares 20+Year Treasury Bond ETF (TLT). Eric Balchunas and Jeff Seyffart at Bloomberg noted that the top 12 mutual funds by inflows in 2023 are all money market funds, led by Schwab Money Fund Investor (SWVXX), which has seen $59 billion in inflows. FOMO for yield investors? So what about that FOMO for yield investors? Alec Young at MapSignals cites falling bond yields as a main factor in why he believes the lows are in for stocks: “Shorting long bonds worked so well, for so long, it became a very crowded trade. Now yields are falling as positioning normalizes,” he wrote. Still, some think a large chunk of the money in short-term Treasuries and money markets is “scared money” and will be “sticky.” “It’s harder to determine what gets people out of money markets and short term paper,” Steve Sosnick at Interactive Brokers told me. “A month like this, if sustained, will bring money off the sidelines. How much is an open question. If people continue to feel gloomy about the economy and their prospects — and bear in mind that the rate cut expectations are somewhat predicated upon a slower economy — then that money is likely to stay in money markets…until those rates actually decline.” Others agree but point out that a lot of money invested in short-term Treasuries will soon be rolling over, likely at lower yields, forcing investors to make a choice. “For a while now the ‘highest’ yield has been in T-bills [Treasury bills]…so many investors bought bills maturing in the first few months of 2024,” Jim Besaw, CIO of Gentrust, told me. “Once those mature is when I think the odds are more likely to see money flowing into equities.” Art Cashin at UBS agrees: “The ones who bought the bonds are profiting greatly because of the rally in bonds, but now they are stuck pretty much with cash and have to make a decision on where to go.” Besaw also believes stocks need to rally a bit more to really draw in all those fence-sitters: “I do think money will flow from bills to equities over time but it will likely be more gradual,” he told me. “Most will come once we retest new highs in the 4800s [in the S & P 500]. That could be in 2023 but much more likely later.” Not everyone thinks retail investors should take the bait and switch to stocks. Buying stocks after a large rally is a classic example of chasing stock performance, as Mike O’Rourke from JonesTrading told me. “The bottom line is Treasuries are still very attractive with the 10-year yield at 4.5%,” he told me. “This is still the most attractive 10-year yield in 16 years. It is hard to walk away from that for a stock market that has rallied 10% in 2 1/2 weeks and [sells for] 20x earnings.” Institutional investors may be forced back into stocks Matt Maley, chief market strategist at Miller Tabak, noted that “scared” retail investors may be slower to make the move from bills and money market to stocks, but institutional traders may not have that luxury. “Long-term institutional investors quickly become short-term traders when the market is rallying strongly in the last 4-6 weeks of the year,” he told me. Those institutional investors “Don’t want any money in cash because it will lag behind the stock market,” he told me. “Institutional players have no choice but to keep investing any cash they have into stocks … even if they’re worried about problems in 2024.” Chris Murphy, co-head of derivative strategy at Susquehanna, agreed that professional traders, faced with a market that is melting up, are going to be forced into the market. “The rest of the year is ripe for equity performance chasing,” he told me. “Imagine we end the year up 20+% and you have to explain to your investors you are underweight equities? There is a lot of cash on the sidelines. Sure 4-5% risk free is great, but compared to 20%?”
Sumber: www.cnbc.com
