It isn’t much discussed in public – sort of like the crazy uncle who lost his fortune gambling on derivatives – but a recent Goldman Sachs portfolio strategy report nailed a discussion that is increasingly being voiced in institutional research reports from Macquarie to Balyasny among others. As global equities head to all-time highs – up near 20% since the US presidential election depending on your stock market yardstick – a concern regarding mean reversion theory is starting to become visible, documented in various research reports. A Goldman report, which had previously predicted a return of volatility occurring in a year, recognizes the issues but draws a different conclusion from those concerned about rapidly rising interest rates.
BofA study shows increased concern regarding markets
Ian Wright and the European-based Portfolio Strategy Research team recognize the general sense of concern.
“Last week, global equities were heading to new all-time highs, further fuelling the fears of the end of the bull market,” the July 17 report titled “Climbing the peak” pointed out.
The Goldman report didn’t go into the logic behind near term concerns expressed in various research, including the Fed withdrawing quantitative dependence from the market and taking a balance sheet diet. While other analysts such as Jeffery Gundlach are concerned about rising interest rates – the impact of once free markets being allowed to more independently stand after years of suppression remains unclear.
The general concern comes as a new Bank of America Merrill Lynch report notes nearly half, 48%, of professional money managers think central bank policy is too stimulative. This is the highest level of dissatisfaction since August 2011, a point when aggressive central bank stimulative measures were on the verge of driving interest rates negative in Europe.
