Positive sentiment begins to dominate
Citigroup`s economic surprises indicator, which measures published economic data relative to analyst expectations, reached a new historically high level this month after positive surprises were published regarding the labor market in the US as well as yesterday`s figures concerning retail sales. The improvement in these indicators has boosted greater appetite for risk in recent days, also backed by the Federal Reserve`s commitment to stimulate the economy and avoid a collapse in credit. Today, Chairman of the Federal Reserve Jerome Powell will conclude his testimony before Congress and it`s expected he will reiterate the bank`s official stance: Recovery will be slow and it will depend on the virus`s evolution and the return of economic agents` confidence. Powell`s words highlight risks that are still existing as the labor market has been strongly affected and new COVID-19 outbreaks have occurred in the United States and in the rest of the world, which has led many to believe that the episode of appetite for risk is only temporary. However, a survey published by Bank of America in June revealed that only half of the main investment fund managers believe that the rally in US stocks is near it’s end, with investors placing a little over $20 billion dollars in funds concentrated in stocks and an exposure to equity markets among hedge fund managers close to 52% in their portfolios. Options and futures expire on Friday at a large scale in the equity market (Quadruple Witching) and investors will have to decide on a course of action; something that could bring volatility to the market. Caveat emptor.