Liquidity trumps appalling data
Behavioral finance studies inform us that many investors are slow to accept new information and adapt their market positioning accordingly. Liquidity is trumping economic data and our positioning is adapting
In our 2nd Quarter Outlook, published in early April, we highlighted a number of developments we would need to see before adding significantly to risk assets in this COVID-19 crisis.
In just three short months all of these requirements have been met:
- Stress abating in funding markets ✅
- Signs of selling exhaustion from credit, volatility and market breadth divergences ✅
- Stabilisation and improvement in credit markets ✅
- Economic expectations data improving from ‘appalling’ to just ‘bad’ ✅
- Stabilisation in equity market trend dynamics ✅
Behavioral finance studies inform us that many investors are slow to accept new information and adapt their market positioning accordingly, a flaw known as conservatism. Our #evidencebased approach has no such bias, and as such we have been adding materially to our equity exposures.