The bulls head to the higher plains looking for fresh grass

As stock markets stall, the signs are that money managers have thrown in the bearish towel. Fund flows suggest many of the shorts have been closed out as the short squeeze has likely fully played out. S&P cumulative flows are back to high conviction sell levels last seen in April and August 2022. This is despite the fact that earnings this season, particularly tech, have generally disappointed, and the Federal Reserve have stuck to the hawkish script by and large. Bloomberg reports money managers have cut $300 billion of bearish bets robbing the market of pent-up demand just as the Federal Reserve warns its inflation-fighting battle is far from over. However, the spread between the yields on the two- and 10-year Treasury notes is approaching a level not seen since 1981, according to Dow Jones Market Data.

According to the AAII survey, retail investors, having spent much of the past year bearish, are now either neutral or bullish, just 25% bearish for the coming 6 months against a historical average of over 30%. Once again, proving that, as the bears come out to picnic and the bulls retreat looking for new pastures, it’s the time to invest. When the tide turns, then, as Mr Buffet reminds us, is the time to be cautious.

Stock markets are the best asset of all as one gets the opportunity to have a small piece of a very large cake. Liquidity can be a blessing and a curse. Selling your property when you think it’s overvalued is a one time trade, you cannot go back a month later and offer the new owner 10% less and expect him to sell. Liquidity allows one to sell, ease the pain, when perhaps calm reflection would have served better. Private equity investment does have the benefit of a lack of liquidity, one knows when one signs up you are in for the long haul.

When investing, it’s easy to focus on what a company is doing now rather than what it will be doing in 5 years, which is ultimately more important. US stocks have fallen on consecutive days, and have shrugged off the weakness in US stocks yesterday, stocks in Europe will open weaker on the final day of the week. As Astra Zeneca’s boss quotes, the UK tax regime is the reason they will not be building a state of the art manufacturing plant in England, and a terrible by election result in West Lancashire for the Tories will most likely heap more pressure on Hunt and Sunak to reverse some of their proposed tax increases at the March budget.