With the landmark 100 days passing since Trump’s second inauguration, investor allocations have been ever changing, which is not surprising given the market uncertainty and volatility.
Looking to keep up with such change, investors have reduced their allocations to equities relative to bonds by 4.2%, according to State Street, the biggest allocation swing toward bonds since the pandemic, and one of the 10 fastest swings seen in a quarter of a century.
This still leaves allocations to equities moderately (1%) above their long-run average, much lower than the near 15-year high in January, but still somewhat vulnerable to uncertainty.
“Concentration risk in US equities has been greatly reduced, but not eliminated,” said Michael Metcalfe, head of macro strategy at State Street Markets. “Long-term investors active allocation to US equities peaked in December, falling by over a fifth by inauguration day, and since then, we’ve only seen a modest fall.”
Despite all the turmoil, the US still is a preferred region – with investors overweight from an equity perspective – but in absolute terms the US overweight will end April close to a four-year low, Metcalfe said.
Metcalfe noted though that international demand for US equities has begun to return in the last two weeks of April and that asset manager demand for the IT sector has surged back close to a five-year high.
From a dollar perspective, asset managers’ holdings peaked on January 14, and have fallen rapidly since then. In a move primarily driven by US based investors, asset managers now hold a neutral position in the dollar for the first time in three and a half years.
“Having reached this neutral position in mid-April, the last two weeks of the month have been characterised by a hesitation on the part of investors to go underweight the US dollar,” Metcalfe added.
Demand wise, treasuries have been an important area, with investor sentiment weakening right into April. “Long-term foreign investor demand for 30-year treasuries has been below average all year, but ended April with weekly flows close to a five-year low,” Metcalfe added.
Looking at the bigger picture, although consumer inflation expectations have surged and some tariffs have already been enacted, State Street’s real-time measures of US inflation from PriceStats shows the trend of disinflation remains intact for now.
“For now, this suggests the sharp downgrade to US growth forecasts is dominating the outlook,” Metcalfe added.
Comments