World’s Largest Asset Manager Compares Market to A Horror Movie, Warns Complacency Is Back
The comments below are an edited and abridged synopsis of an article by Tyler Durden
When the portfolio manager for the world’s largest asset manager warns, following a market surge that saw virtually every major asset in January post positive returns, that the market resembles a horror movie, it’s probably a good idea to listen. That’s just what BlackRock’s Russ Koesterich has done in his latest blog post, asking “Have investors shifted market sentiment too quickly,” and giving three specific reasons why that is indeed the case.
Durden’s article details Koesterich’s take on why markets have gone from despair to euphoria in the blink of an eye, and why this signals that complacency is back once again.
Up for discussion: Have investors shifted market sentiment too quickly; the economic data has not stabilized; volatility no longer looks too high relative to financial conditions; and political risk has not dissipated.
Of course, there is a counter argument: Risky assets have already discounted slower growth and less accommodative financial conditions. That was true in December, but it is less obvious today.
Markets have already retraced the December swoon. For example, high yield spreads—the difference in yield between high yield bonds and similar maturity Treasuries—increased by over 100 basis points in December, indicating extreme risk aversion. However, since the start of the year, spreads have subsequently reversed most of that move and are now back to levels last seen in early December.
It appears that investors are now convinced the fright has passed. That is normally the time to grip the armrest a bit more tightly.