Despite the strong recovery in many risky assets since Christmas, the market’s mood remains sober. Even as global equities have risen almost 17% over this period, the majority of investors have continued to be skeptical of the rally and lightly positioned.1 Investor survey data in March showed that fund manager positioning in global equities is at levels last seen in the prior mid-cycle slowdown of 2016.2
The dovish policy turn, most notably by the Federal Reserve (the Fed) but also the European Central Bank (ECB), was a major force that lifted risky assets and led to a pronounced global rates rally. Yet both the central banks’ dovishness and the lower rates themselves appear to have exacerbated growth concerns. The inversion of the U.S. yield curve (albeit brief and partial) and the lowering of official growth and inflation forecasts by the Fed and the ECB seemed to support the perceived inevitability of a continued slowdown. Intriguingly, many areas of the market still appear to be pricing in a severe slowdown or recession (e.g. U.S. banks, short-end bonds, many cyclical stocks, and certain areas of the Eurozone and Japanese equity market).