Why Money Managers Are “Paralyzed In Their Decision-Making Process”

Bizarro market got you paralyzed with inaction (and unwilling to generate trading commissions for Goldman) as you try to make sense of an insane world in which first rising (but not too much) bond yields were desperately spun as positive for the economy and thus stocks because it means inflation is finally on the way, only for the same spinners to turn around and now allege that plunging bond yields are great for the Equity Risk Premium so you must, you guessed it, buy stocks? Fear not: you are not alone: according to the following note from FBN, what JPM, Citi and Goldman are lamenting, this era of a new permanently high equity plateau, and a permanently low vol and yield ravine, is driving pretty much everyone insane.

From FBN’s JC O’Hara

Perceived Discrepancies with New Highs

The market once again made a new high. This continues to be a market you cannot bet against. There are many perceived discrepancies between what one would expect to find at new highs vs what we currently have. Small Caps are lagging, yields continue to decline, new highs are scarce, and the average stock is still -11% from making a new 52 week high. Combine that with depressed readings from the VIX, credit spreads, and other market stress indicators and you have managers that are paralyzed in their decision-making processes. Many market forces and technical studies are giving contradictory signals. At the end of the day we cannot discredit the markets new high.

Sure, this may be a late stage market breakout, and according to the masses, a pullback is ‘needed’, but money continues to find its way into stocks. Someone likes the market so much they are willing to add exposure at all-time highs. We want to highlight that this is not just a US market rally, but a global developed market rally. The MSCI Developed Market Index just surpassed its 2007 highs. New Highs have the power to quickly change sentiment. We are at multiyear high levels of neutral readings according to AAII. According to NAAIM, the average manager is under exposed to where we would expect them to be positioned at new highs. This creates a market chase scenario which is dangerous. While we do not love our dance partner we are still on the dance floor and the music continues to play…