Investors Are Risking Great Losses

Capital flows surged into equities in February at the highest rate since early 2018. Investor belief that the strong rally since last March’s lows will continue. Indeed, capital inflows grew even as the S&P 500 weakened, providing evidence that the “buy the dip” rationale remains intact.

The current extreme bullish consensus that we have described in our recent posts remains a concern, even as cracks are appearing in markets. We continue to believe the current risk/reward environment for investors is very poor.

The fragile economic and geopolitical climate will produce unusually high volatility, which will be a feature of the coming decade. This volatility will expose inattentive investors to the prospect of significant losses but will also produce very attractive risk/reward opportunities for active investors who seek them out.

We believe that current levels place the onus on strategies to preserve capital in preparation for the opportunities to come.

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