Underinvested investors need to assess their willingness to lose as valuations surge ahead of the consensus view on the economic outlook.
The traditional favourable start to financial markets in 2023, due to investor fund inflows that typically accompany the new year, has been turbocharged by data pointing to a greater possibility of a soft landing for the US economy and, most recently, the signals coming out of the Federal Reserve.has been so quick and so big for both stocks and bonds that it raises an interesting question for underinvested investors who have not yet put their money to work.
Indeed, the markets this week increased their expectations for rate cuts later this year, further fuelling the rally in stocks and other risk assets.& In doing so, they would be discarding indicators that would favour the alternative — that of waiting for better entry points. Such indicators include still-worrisome forward-looking economic data, including purchase managers’ indexes and layoff announcements, as well as the Fed’s consistent forward policy guidance. They would also need to think that the central bank will not worry about the loosest overall financial conditions in a year.It is a delicate balance to say the least.
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