Last Full Trading Week of the Year Begins
And the sellers may not be done yet.
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Our View
Inflation is and will be a problem moving forward. Let's face it, the American people are pessimistic. A Wall Street Journal poll shows a majority of voters think the economy will be in worse shape in 2023 than it is now and roughly two-thirds say the nation’s economic trajectory is headed in the wrong direction. For what it’s worth, I happen to be one of those people.
I remember stepping off a plane coming back from 3 weeks in the UAE in 1996 and thinking to myself, we live in a wonderful land. However, geopolitical shifts, nearly 15 years of quantitative easing, $31+ trillion in debt and Putin's war in Ukraine are pushing the US into a recession.
It's funny — but not in a laughing kind of way — but this doesn't feel like a Christmas holiday.
Our Lean — Danny’s Take
According to JPMorgan, the world’s biggest money managers are set to unload up to $100 billion of stocks in the final few weeks of the year. JPMorgan calculates that Japan’s $1.6 trillion GPIF, the world’s largest pension fund, would have to sell $17 billion of equities to get back to its target asset allocation. The $1.3 trillion Norwegian Oil Fund could move $12 billion from stocks to bonds.
Notwithstanding their losses this week, equities gained over the quarter, driving up their value relative to other asset classes and forcing managers with strict allocation mandates to sell them to meet targets. Bonds are the likely beneficiaries of sales by sovereign wealth, pension, and balanced mutual funds looking to replenish their fixed-income holdings. This is on top of the constant tax selling which has been exacerbated by the Fed’s warning of further rate hikes.
I’m pretty sure we have already seen part of the sell stocks/buy bonds allocation, but the major part of it should be in the final 3 to 5 sessions of the year.
Our Lean: