Leading into the weekend, when the debt ceiling had not been settled, markets were exhibiting very interesting positioning. To start, US Treasuries across the maturity spectrum were hugely out of favor. Net speculator positioning in options and futures was as short as ever. The charts below show the 2-year, 5-year, and 10-year US Treasury.
At the same time, investors were very short on stocks. The next couple of charts shows speculator net positioning in the S&P 500 and the MSCI EAFE Index (a proxy for the developed world ex-US).
Hopefully, a successful debt ceiling deal brings some risk-taking back into the markets. At present, all money flows are going into money market funds, which is good news and bad news. The bad news of course is that these are money flows not going into risky assets. The good news is that should the inflation fever break convincingly and US Treasury rates roll over, there is a tremendous amount of money that will be looking for higher returns.
While early indications seem to suggest that spending will be curbed in the next few years relative to the baseline by about $50 billion, at the same time, the US Treasury may issue a flood of US Treasury bills to rebuild its coffers, perhaps the more attractive play right now is the medium-to-longer dated US Treasuries.
Disclosures
The information presented here is for informational purposes only and is not to be construed as an offer to sell, or the solicitation of an offer to buy securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. Hyperlinks may be included in this message that provides direct access to other internet resources, including websites. While we believe these links are to reliable sources, Knowledge Leaders Capital (“KLC”) has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up-to-date, and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Knowledge Leaders Capital.
The information provided on this blog is for illustrative or example purposes only and should not be construed as KLC’s opinion or investment outlook. As of the most recent quarter-end, the named companies may have been held by KLC. For full information including additional policies and full disclosures, please visit our website: KnowledgeLeadersCapital.com.
Any reference to Index performance does not represent the performance of any investment product offered by Knowledge Leaders Capital, LLC. An investor cannot invest directly in an index. The performance of the client account may vary from the Index performance. Index returns shown are not reflective of actual investor performance nor do they reflect fees and expenses applicable to investing.
Companies are selected for “Spotlights” based on high levels of innovation activities in their respective industries and illustrate innovation being employed across all sectors and geographies. Spotlight selection is separate from stock selection by the investment team. Spotlights are not necessarily representative of investment opportunities and can be selected regardless of investment performance or inclusion as a KLC holding.
A message from Advisor Perspectives and VettaFi: To learn more on this and other topics, check out our full schedule of upcoming CE-approved virtual events.
© Knowledge Leaders Capital
Read more commentaries by Knowledge Leaders Capital
