Institutional investor equity positioning (percentile relative to history)
Source J.P. Morgan, based on institutional client survey as of July 16, 2023.
- Economic sentiment has seen a notable shift recently in the face of resilient consumer spending, improved consumer sentiment and rapidly cooling inflation, punctuated by June’s CPI report.
- Amid the improved economic data, markets have embraced a full risk-on mode. The S&P has risen nearly 9% since May while high yield bond spreads have rapidly fallen back to their year-to-date low. (Spreads refer to a bond’s yield above Treasuries, or the risk-free rate.)
- A note of caution may still be warranted, however, as markets remain vulnerable to rounds of volatility. The chart highlights select institutional investors’ hesitance to adopt a full risk-on mode despite the market rally. As it shows, 42% of investors still consider themselves to be positioned relatively bearishly (orange lines in the 50th to 100th percentile) while more than one-third (37%) consider themselves positioned neutrally (40th to 60th percentiles).1
- Indeed, there are reasons for caution. Inflation has clearly downshifted; however, core monthly data has yet to signal that the Fed’s job is complete. Forward-looking indicators, including initial jobless claims, also continue to sound alarms bells that the recent economic revival may be just one chapter of a larger story.
- Against this backdrop, individual investors might consider the recent bull market a good opportunity to diversify their portfolios in an effort to seek lower or uncorrelated sources of return.
