Rudi’s View: Preparing For Bear Phase II

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 24 2022

In this week's Weekly Insights:

-Preparing For Bear Phase II
-Conviction Calls
-Research To Download
-AIA Investor Day In Sydney

By Rudi Filapek-Vandyck, Editor

Preparing For Bear Phase II

Sometimes the most important market insight is hiding underneath daily share price movements.

Intriguingly, the latest update into who's buying and selling US equities by S&P Global Market Intelligence is showing an ever-widening gap between financial institutions (selling) and retail investors (buying).

The data available are only up to November 2, but it seems unlikely things have dramatically reversed in the two weeks since.

It is S&P Global Market Intelligence's observation that selling has been happening pretty much across the spectrum, suggesting institutions have been decreasing their exposure to equities generally, without singling out a specific sector or part of the market.

This strongly suggests risk-off attitude and a generally more defensive positioning, away from higher risk assets.

For good measure: October witnessed retail investors net selling during two weeks and net buying during two weeks for a slightly negative net outcome for the month.

But the attention-grabbing observation remains one of decisively reducing exposure by institutions, as has now been the case throughout the calendar year to date (see graphic overview below).

It is likely there is not one single reason or strategy behind these numbers, but it does add an important twist to the global debate that is dominating on social media and in the financial press these past few weeks: have we seen the bottom in global equity markets? Is the 2022 Bear Market now behind us?

It would appear institutions don't think this is the case.


A similar observation stems from the monthly global fund manager survey by Bank of America.

This month's outcome revealed overall sentiment remains bearish, cash levels on average are still above 6%, a recession for the US and possibly the global economy in 2023 is now pretty much the consensus view while no less than 92% of respondents is preparing for stagflation; below-trend economic growth with above-trend levels of inflation.

Around one third of respondents' major concern is that inflation might stay higher-for-longer.

Most investors see US headline inflation between 4-5% by year-end next year, too high for comfort, clearly.

With most anticipating the Federal Reserve may not pause, let alone lower the cash rate until inflation is below 4%, the prospect for higher-for-longer interest rates is clearly on everyone's mind.

At 6.2%, the average cash level sits well above the long-term average of 4.9% and only a smidgen below last month's 6.3%, which was the highest percentage on record post April of 2001.

Relative to the past 10 years, investors globally are long cash, defensives (utilities, staples, healthcare), and bonds and underweight equities, tech, eurozone equities, and cyclicals.

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