Investor Expectations Are Beginning To Converge With Economic Realities
What Next?
We have written for some time in these weekly commentaries, and in greater detail in the pages of the Global Investment Letter, of our expectation that the global economy will begin to slow significantly in the second half of 2021.
When we began writing of our reservations about the global economy’s ability to continue its stimulus-induced growth spurt, our views were counter to the strong optimism of consensus thought that was reflected by capital markets.
The “crowd” appears to have caught up to the Global Investment Letter, as is depicted by the following chart.
The results illustrated by the chart above were derived from a broad survey of money managers. Of particular note is the tendency of these results to move to extremes if investor sentiment has shifted dramatically in a short time, as it has in 2021. The inference is that current readings may fall to levels that marked previous lows (highlighted on the chart), which were often accompanied by sharp market declines. The chart provides additional evidence to support our ongoing view that the risk/reward proposition offered by markets is less than ideal.
The absence of a concerted decline by equity markets means that the divergence between investor expectations and the underlying economic prospects remains considerable. We continue to believe that recognition by markets to the economic realities is inevitable, but the timing of which remains uncertain.
We continue to advocate the use of protective sell prices to preserve accrued gains in the event of a correction /bear market while allowing participation in potential market gains in the meantime. Our strategy for our own positions is updated in each monthly issue, along with our comments on major global equity, bond, currency, and commodity markets.
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