Risk-addicted Wall Street funds are shaken as bad news piles up
Jerome Powell was poised to kick off the great monetary pivot in earnest thanks to the steady demise of inflation, while Corporate America’s famous profit machine vindicated the euphoria on Wall Street and beyond.
Now after a week of geopolitical tensions and bond volatility, life is getting harder for money managers who are sitting on some of their highest exposures to stocks and credit combined in a decade.
Among the pressure points: News that Israel is bracing for an unprecedented attack by Iran on government targets — spurring the S&P 500’s worst week since October as stock volatility jumped Friday while Brent crude settled above $90 per barrel. Earlier this week, a hotter-than expected inflation print pushed 10-year yields above 4.5%, pushing the dollar higher.
With the likes of Goldman Sachs Group Inc. and Barclays Plc curbing their rate-cut bets for this year, the valuation-be-damned risk-on playbook of 2024 looks dangerous to a growing cohort of investment pros. Even stock bull Ed Yardeni is issuing words of caution as Middle East strife saps the momentum of equities and raises the prospect of $100 oil.
“The S&P 500 has had a nearly vertical ascent,” said a Yardeni Research Inc. note to clients Friday. “That might be it for a while, especially if push does come to shove between Israel and Iran.”
Source: Societe Generale
Tolerance for bad news is lower than it has been for a while. Fund managers have already seen their exposures to equities and corporate bonds jump to two thirds of their overall assets
