Big Money in Stock Market Is In Mad Dash to Get Out of Fed’s Way

Despite a lot of confident predictions, nobody knows what will happen at the Federal Reserve Wednesday, never mind what the impact will be on markets. Professional investors aren’t waiting around to find out.

Particularly among managers who premise strategies on quantitative signals, exposure to stocks and other risky assets has been cut to the bone. Weeks of selling has pushed systemic positioning as measured by Deutsche Bank AG two standard deviations below average levels in data starting in 2010, among other examples.

Hedge funds have been similarly expeditious, selling equities at the fastest rate on record over two days through Monday, according to Goldman Sachs Group Inc. prime brokerage data. They’re pulling out as implied volatility across assets sits at levels not seen for any pre-Fed session in more than a decade.

All of it is testament to swelling uncertainty headed into Wednesday’s Fed meeting, where anything from a half-point to a full-point increase in the federal funds rate is forecast. Stock prices have been flattened in the rush to the exit, with the S&P 500 heading for the worst month since the pandemic selloff in 2020. Bond turmoil is everywhere, with two-year Treasury yields spiking to the highest level since 2007.

“We’re sitting at the bottom and there’s plenty of dry powder, but everybody’s fleeing to cash because they’re afraid of runaway inflation,” Benjamin Dunn, president of Alpha Theory Advisors, said by phone. “There’s doomsayers out there saying that policy makers cannot engineer what they need to do to bring down prices without completely breaking the bond market.”