The Options Clearing Corporation (OCC) announced that MIAX Sapphire, has become an OCC participant exchange.
MIAX Sapphire, owned by parent holding company Miami International Holdings, launched operation of the MIAX Sapphire electronic exchange on August 12, 2024.
MIAX Sapphire is MIAX’s fourth U.S. listed options exchange. With the addition of MIAX Sapphire, OCC now provides clearing and settlement services to 21 exchanges and trading platforms for options, futures and securities lending transactions.
“OCC congratulates MIH on the launch of its fourth listed options exchange,” said Andrej Bolkovic, OCC Chief Executive Officer. “As the central counterparty clearinghouse for all U.S. listed options, we are pleased to offer our clearing and settlement capabilities to MIAX Sapphire and to support the exchange-traded options industry’s continued growth.”
“The launch of MIAX Sapphire provides our members, liquidity providers and market makers with a new exchange designed to meet their evolving demands for improved access to options liquidity,” said Thomas P. Gallagher, Chairman and Chief Executive Officer of MIH. “The launch of our fourth U.S. options exchange provides our market participants with access to 100% of the multi-listed options market, all supported by our proprietary technology designed to enhance liquidity and promote improved price discovery.”
The Fed is preparing its new Jackson Hole symposium with the market expecting, and almost demanding, a rate cut. It’s been 14 months since rates have been stationary, despite the drop in inflation.
The monetary authority will begin its annual monetary policy meeting next Thursday, August 22, titled Reassessing the Effectiveness and Transmission of Monetary Policy.
With inflation data trending downward, employment figures strong, and retail sales showing no alarming signs, experts are pressuring the central bank to lower interest rates and to begin a series of rate cuts by the end of the year.
For example, a report from AIS Financial Group summarized that last week the S&P 500 rose by 3.9%, recovering the levels of late July prior to the drop in the first days of August. It has also accumulated a 16.45% increase year-to-date (YTD). In this regard, AIS states that “the market consensus sets an average target price of 5,460” for the S&P 500 by the end of 2024.
Additionally, the market’s rise was driven by the Technology (7.5%), Consumer Discretionary (5.2%), and Financial (3.2%) sectors. In this context, “the Fed is expected to start rate cuts in September, with four cuts expected by the end of the year. The data released last week and the market’s reaction confirm that recession, rather than inflation, has now become the main driver for the market,” AIS asserts.
Therefore, they recommend “being prudent, looking for defensive sectors, quality sectors with solid balance sheets to face this context,” and highlight sectors like banks, energy, healthcare, defensive consumption, and industrial.
On the other hand, the KKR report, signed by Henry H. McVey, Head of Global Macro, Dave McNellis, Co-Head of Global Macro & Asset Allocation, and Ezra Max, Associate, U.S. Macro, asserts that the Federal Reserve “will cut rates, but not recklessly.”
The experts agree with the market’s forecast of four or five cuts in the next three months, “implying at least a 50 basis points cut, which is too pessimistic for a world where GDP is approaching 3% and inflation remains above target.”
Moreover, they confirm that there have been no changes to consumer price forecasts or the Fed’s outlook of three cuts this year and six cuts in 2025.
“Regarding rate policy, we expect the Fed to cut once at each meeting from now until mid-2025, before reaching a neutral low rate of three percent,” says the KKR report.
McVey, McNellis, and Max warned that the return of the Fed’s dual mandate and the growth data – including Thursday’s retail sales data and refund requests – are becoming the most important factors for the pace of Fed easing, and this could change opinions.
“Our baseline hypothesis is a turbulent and soft landing, but a strong GDP rebound would lead us to expect a more aggressive Fed rate cut path. Therefore, the risks remain to the downside for rates and yields, and our message is that now is not the time to bet heavily on floating rates staying at the current high levels,” they explained.
David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, for his part, expressed that Fed Chair Jerome Powell could be satisfied with the progress of his administration when comparing the macroeconomic figures from when he took office during the COVID-19 pandemic to now.
However, that “certain satisfaction” will lead investors to focus on how stocks will be determined, to some extent, by how the Fed evaluates the impact of monetary policy on the economy.
Chair Powell’s view, expressed at many press conferences, is that monetary policy is powerful but acts on the economy with long and variable lags. However, while this seems to coincide with empirical observation, it is unclear, in a world of instant information, why this is or should be so, Kelly added.
Regarding the most likely Fed path, the expert distinguishes between pre and post-August 4 forecasts.
In June, the Fed forecasted only a 25 basis points cut by the end of 2024 and a further 1% reduction by the end of 2025. However, on August 4, following a slight increase in unemployment benefit claims and a weak July employment report, the market widely anticipated a 1% cut by the end of 2024 and cuts exceeding 2% by the end of 2025.
“One of the reasons for this sharp shift in expectations is probably the recognition that if the Fed started cutting aggressively, it would likely continue to do so. If, for example, the Fed cut 50 basis points at its September meeting, the economy would likely be weaker, not stronger, by the time of the November meeting, which would pressure the Fed to institute new 50 basis points cuts. This is a path the Fed would clearly want to avoid, preferring to normalize rates slowly in an economy maintaining stable growth, even as inflation moves away from its 2% target,” he commented.
The Federal Reserve will take into account the data and events of this week. However, it seems likely that, in his Friday speech, Powell will try to reinforce the idea that monetary easing should be, and will be, gradual, laying the groundwork for a 25 basis points rate cut in September, with the potential for only 25 to 50 basis points in additional cuts before the end of the year, Kelly estimates.
According to the expert, this should be considered good news for investors. While active monetary policy can be quite effective in times of financial stress, such as stabilizing financial markets during the Great Financial Crisis, it has proven to be very ineffective in stimulating a slow economy or cooling a hot economy. Fortunately, outside of crisis times, the economy seems to retain the ability to heal itself – as it largely has in recent years – and this should support a further rise in stock prices and a slow drift downward in long-term interest rates, Kelly concludes.
Pixabay CC0 Public DomainAutor: Mojca-Peter from Pixabay
U.S. equities continued to rise in July, driven by a cooler-than-expected June CPI report that sparked a rotation from big tech and growth stocks to small-cap and value stocks. While it is too early to determine if this shift will be sustained, a long-awaited mean reversion seems likely, especially after the significant gains by the “Magnificent Seven” stocks over the course of the past 18 months.
Given the numerous factors influencing the stock market outlook, such as the upcoming U.S. election and interest rate changes, perhaps investors are starting to be mindful of the current market concentration. We have previously highlighted that just seven stocks account for nearly one-third of the S&P 500’s weighting and were responsible for over 50% of the index’s calendar year’s gains. Slower economic growth, a cooling labour market, and reduced consumer spending are potential factors that could increase market volatility, potentially benefiting investors who maintain a diversified portfolio.
On July 31, the Federal Reserve kept interest rates steady for the eighth consecutive meeting and have not yet indicated if a rate cut is anticipated to happen in the next meeting in September. Fed Chair Jerome Powell reiterated that the Fed will continue to reassess conditions meeting by meeting and that they are willing to hold rates steady as long as needed. On a positive note, inflation continues to cool and has made progress toward the Fed’s 2% target. The next FOMC meeting is scheduled for September 17-18. In July, the Russell 2000 Value significantly outperformed the S&P 500, yet still lags in year-to-date performance by over 500 bps. We anticipate a favourable environment for smaller companies as post-peak rates and necessary consolidation in certain industries such as media, energy and banking should lead to a more robust year.
Merger Arbitrage performance in July was bolstered by deals that closed, deals that made notable progress in receiving regulatory approvals, and a general firming of deal spreads following a period of heightened volatility. Amedisys (AMED-$98.05-NASDAQ), which agreed to be acquired by United Health for $101 cash per share, agreed to divest a package of care centers owned by Amedisys and UNH to home health operator Vital Caring in an effort to assuage the U.S. Department of Justice’s concerns about geographic overlap between the companies and shares reacted positively on optimism about the deal. Following a strategic review process, trade show operator Ascential plc (ASCL LN-£5.71-London) agreed to be acquired by Informa for £5.68 cash per share, with additional proceeds from a future asset sale. We crystallized gains on Westrock Co. (WRK-NYSE), Equitrans Midstream (ETRN-NYSE), Olink Holding AB (OLK-NASDAQ), Cerevel Therapeutics (CERE-NASDAQ) and Hibbett Inc. (HIBB-NASDAQ), among others. We remain optimistic about our ability to generate absolute returns going forward, and with first half M&A activity increasing 18% to $1.5 trillion, we expect to continue finding attractive investment opportunities.
In July the convertible securities market saw breadth expand, with a long overdue rotation out of mega cap tech into small cap. This trade was beneficial to many of the companies in the convertible market. While we believe there is room for this rotation to continue over a longer time horizon, we remain focused on companies with strong underlying fundamentals where we expect the convertible to provide asymmetrical exposure over time. Additionally, after months of postponed rate cut expectations, we are starting to see some data that suggests that easing financial conditions are imminent. This led to a bid in many holdings that would benefit from a lower rate environment, particularly in the Utilities sector, where we have been increasing our holdings.
Opinion article by Michael Gabelli, managing director at Gabelli & Partners
Gold is now trading above $2,500 per ounce, showing signs of potentially breaking its historical highs again. Its value as a safe-haven asset shone brightly in the first weeks of August following the volatility shock experienced by the major equity markets, causing gold to rise after several downward sessions. Now that this “scare” has passed, what could continue to drive its valuation?
In the opinion of Charlotte Peuron, equity fund manager at Crédit Mutuel Asset Management, the increase in gold’s price to $2,400 per ounce has been driven by Western investors through gold ETF purchases and a more favorable financial environment for gold.
According to her outlook, given the downward trend of the dollar against other currencies and the real U.S. interest rates, the upward trend in gold is expected to continue.
“The upward trend in gold prices dates back to 2022. Three factors explain this movement: sustained demand for jewelry; investment in physical gold (coins and bars) by Asian investors; and massive purchases by central banks in emerging countries, particularly China, who wish to diversify their foreign exchange reserves and thus reduce their exposure to the U.S. dollar,” explains Peuron.
For James Luke, a commodities fund manager at Schroders, additional factors include changes in geopolitical and fiscal trends that are paving the way for sustained demand for gold, and gold miners might be poised for a significant recovery.
“Geopolitical and fiscal fragility—trends directly linked to demographic shifts and deglobalization, which, along with deglobalization, characterize the new investment paradigm that we at Schroders have dubbed the 3D Reset—combine today to forge a path toward a sustained and multifaceted global drive for gold supplies. In our view, this could trigger one of the strongest bull markets since President Nixon closed the gold window in November 1971, ending the U.S. dollar’s convertibility to gold,” he argues.
Towards a Polarized World
One of the most interesting reflections made by Luke is that the strength of gold reflects the shift towards a more polarized world. “The escalating tension between the United States and China, and the sanctions imposed on Russia following the invasion of Ukraine in 2022, have driven record gold purchases by central banks as a monetary reserve asset,” says the Schroders manager.
Currently, the $300 billion in frozen Russian reserve assets clearly demonstrate what the “weaponization” of the U.S. dollar—or in other words, the dollar’s hegemony—can truly mean. In his opinion, the massive issuance of U.S. Treasury bonds to finance endless deficits also raises questions about the sustainability of long-term debt. Furthermore, he notes that central banks—China, Singapore, and Poland, the largest in 2023—have been paying attention, although record purchases have only increased the share of gold in total reserves from 12.9% at the end of 2021 to 15.3% at the end of 2023.
“From a long-term perspective, central bank purchases clearly reflect the evolution of global geopolitical and monetary/fiscal dynamics. Between 1989 and 2007, Western central banks sold as much gold as they practically could, as after 1999 they were limited by gold agreements that central banks reached to maintain order in sales.
In that post-Berlin Wall and Soviet Union world, where U.S.-led liberal democracy was on the rise, globalization was accelerating, and U.S. debt indicators were quite quaint compared to today’s, the demonetization of gold as a reserve asset seemed entirely logical,” he explains.
However, he clarifies that the 2008 financial crisis, the introduction of quantitative easing, and emerging geopolitical tensions were enough to halt Western sales and quietly attract emerging market central banks to the gold market, averaging 400 tons annually between 2009 and 2021. According to Luke, “these are significant figures, less than 10% of annual demand, but not seismic.”
On the other hand, he warns that the more than 1,000 tons of gold—accounting for 20% of global demand—purchased by central banks in 2022 and 2023, a pace that continued in the first quarter of 2024, is potentially seismic. “It seems entirely plausible that the current tense dynamic between established and emerging powers, combined with the fiscal fragility looming not only over the reserve currency issued by the U.S. but over the entire developed economic bloc, could trigger a sustained move towards gold,” he argues.
In this context, and to put it bluntly, his main conclusion is that “the gold market is not large enough to absorb such a sustained move without prices rising significantly, especially if other global players also try to enter more or less at the same time.
The Securities and Exchange Commission announced charges against 26 broker-dealers, investment advisers, and dually-registered broker-dealers and investment advisers for widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications.
The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $392.75 million, as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations, the press release said.
Three of the firms, as noted below, self-reported their violations and, as a result, will pay significantly lower civil penalties than they would have otherwise.
See below the list of fined companies:
Ameriprise Financial Services, LLC agreed to pay a $50 million penalty
Edward D. Jones & Co., L.P. agreed to pay a $50 million penalty
LPL Financial LLC agreed to pay a $50 million penalty
Raymond James & Associates, Inc. agreed to pay a $50 million penalty
RBC Capital Markets, LLC agreed to pay a $45 million penalty
BNY Mellon Securities Corporation, together with Pershing LLC, agreed to pay a $40 million penalty
TD Securities (USA) LLC, together with TD Private Client Wealth LLC and Epoch Investment Partners, Inc., agreed to pay a $30 million penalty
Osaic Services, Inc., together with Osaic Wealth, Inc., agreed to pay an $18 million penalty
Cowen and Company, LLC, together with Cowen Investment Management LLC, agreed to pay a $16.5 million penalty
Piper Sandler & Co. agreed to pay a $14 million penalty
First Trust Portfolios L.P. agreed to pay an $8 million penalty
Apex Clearing Corporation agreed to pay a $6 million penalty
Truist Securities, Inc., together with Truist Investment Services, Inc. and Truist Advisory Services, Inc., which self-reported, agreed to pay a $5.5 million penalty
Cetera Advisor Networks LLC, together with Cetera Investment Services LLC, which self-reported, agreed to pay a $4.5 million penalty
Great Point Capital, LLC agreed to pay a $2 million penalty
Hilltop Securities Inc., which self-reported, agreed to pay a $1.6 million penalty
P. Schoenfeld Asset Management LP agreed to pay a $1.25 million penalty
Haitong International Securities (USA) Inc. agreed to pay a $400,000 penalty
“As today’s enforcement actions against more than two dozen firms reflect, we remain committed to ensuring compliance with the books and records requirements of the federal securities laws, which are essential to investor protection and well-functioning markets,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Among this group of firms, there are several that differentiated themselves by self-reporting prior to the staff’s investigation, demonstrating once again the real benefits of proactive cooperation.”
Each of the SEC’s investigations uncovered pervasive and longstanding use of unapproved communication methods, known as off-channel communications, at these firms.
As described in the SEC’s orders, the firms admitted that, during the relevant periods, their personnel sent and received off-channel communications that were records required to be maintained under the securities laws. The failure to maintain and preserve required records deprives the SEC of these communications in its investigations. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.
The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both. The firms were also each charged with failing to reasonably supervise their personnel with a view to preventing and detecting those violations.
In addition to the financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.
Separately, the Commodity Futures Trading Commission announced settlements with The Toronto Dominion Bank, Cowen and Company, and Truist Bank for related conduct.
DWS announced that Jay DeWaltoff has joined the firm as Head of U.S. Real Estate Debt to accelerate the growth of its existing U.S. real estate credit business and expand its global private credit platform.
He will be based in the firm’s New York City office and report directly to Todd Henderson, Co-Global Head of Real Estate and Head of Real Estate for the Americas.
DeWaltoff brings over two decades of origination and structuring experience to the role. Prior to joining DWS, he was the Head of the Commercial Mortgage Loan Group at J.P. Morgan Asset Management within its Alternatives platform, where he was directly responsible for capital raising, constructing tailored portfolios to meet investor objectives, and approving all new investments.
During his 11-year tenure, DeWaltoff successfully led the team in building a dynamic commercial mortgage lending platform, growing commitments from less than $2 billion to over $13 billion. He has also held previous roles at Citigroup Global Markets and Cushman & Wakefield.
“With $116 billion in assets across our Alternatives platform and a 50-year track record, DWS has cultivated longstanding strategic relationships with investors seeking access to private real estate, infrastructure, and liquid real assets. We are seeing increased opportunities in the debt market due to the macroeconomic and regulatory environments which should deliver attractive risk-adjusted return potential to investors,” said Henderson. “We are delighted to welcome Jay to the team as we deepen our commitment to our clients in the Alternatives sector and look to take advantage of improving fundamentals in the real estate sector to generate above-average returns across the risk spectrum in the asset class.”
In addition to the appointment of DeWaltoff, Daniel Sang, Catherine Millane, and Khrystyna Bazlyak, join DWS. All three join from J.P. Morgan Asset Management. The new joiners will bolster the strength of DWS’s existing team which has a longstanding track record of success in real estate credit.
DeWaltoff added: “I’m pleased to be joining DWS during such a pivotal time for the real estate market. DWS’ brand in the real estate ecosystem, combined with its equity track record, and deep institutional relationships, provides a strong jumping-off point for me and the team to help drive the business forward.”
DWS has managed corporate credit portfolios for over 25 years, with over EUR 100 billion in dedicated investment grade, hybrid, high yield, and direct lending portfolios. DWS aims to build diversified portfolios that deliver attractive risk-adjusted returns with a focus on capital preservation to investors, which include governments, corporations, insurance companies, endowments, retirement plans, and private clients worldwide, according the firm information.
The independent and hybrid registered investment advisor (RIA) channels are growing at a faster pace than other brokerage channels. To capitalize on this opportunity, asset managers are expanding their coverage models and the depth of their resources for larger RIAs, according to the latest Cerulli Edge-U.S. Advisor Edition report.
The total number of independent and hybrid RIAs has surged in the past decade, rising from 18% to over 27%, and is expected to exceed 30% within the next five years.
Advisors with varying levels of experience and assets have made the switch, but RIAs with more than $1 billion in assets under management have experienced the greatest expansion.
With this growth, asset managers are enhancing their coverage models, expanding their service menus to better cater to these massive RIAs.
Currently, more than two-thirds of asset managers offer or plan to offer dedicated key account coverage, institutional pricing, and client-facing marketing materials to the largest RIAs.
At least 75% of asset managers are using or planning to use dedicated key account coverage to aid in distribution efforts with the largest RIA firms. However, these resources are no longer sufficient compared to the more complex resources advisors now expect from the industry.
“It is no longer a competitive advantage to simply provide key account coverage or make client-facing marketing materials more user-friendly,” says Kevin Lyons, senior analyst.
Advisors are seeking more intricate resources that can truly benefit their practice by making it more efficient, he added.
As a result, distribution executives at asset managers have also begun to focus on other services: nearly 70% currently offer or plan to offer portfolio construction/model construction services or investment analysis tools.
More than half (52%) offer or plan to offer business consulting resources (e.g., succession planning, growth strategies, team structuring).
“Wave after wave of advisors is joining the independent channel, coming from firms and channels that often provided portfolio analysis tools, consulting expertise, and investment analysis as part of their advisor affiliation. Asset managers understand the need to prioritize coverage in the RIA space and help fill any gaps in research or even administrative services that their former firms provided,” says Lyons.
As more experienced advisors migrate to independent and hybrid RIA channels, asset managers can seize the opportunity by deepening their competitive positioning through the quality of the resources they offer, making themselves more attractive potential partners for advisors, concludes the expert.
BlackTORO Global Wealth Management and SORO Wealth announced this Wednesday a strategic alliance to jointly offer comprehensive investment and wealth management solutions to Mexican individuals and families.
SORO Wealth, based in Monterrey, “is defined by its excellence and innovation in providing wealth management advice to Mexican individuals and families, including corporate legal services, family governance definition, and legal advice on private equity and venture capital structures and transactions,” according to the statement accessed by Funds Society.
“This agreement marks an important step in our efforts to provide high-quality, value-added services to our clients in Latin America. The combination of our strengths will enable us to offer differentiated and long-term investment solutions to Mexican investors from the U.S.,” said Gabriel Ruiz, partner and president of BlackTORO.
BlackTORO has fiduciary responsibility and aims to provide independent, globally aligned investment advice that meets the high standards sought by Latin American individuals and families when investing their wealth. Their personalized services include investment portfolio advice and management and access to leading U.S. financial entities for custody and execution, with preferential conditions and costs, according to the firm’s statement.
The BlackTORO team has an “extensive track record in the financial industry, bringing essential experience and knowledge to the success of this strategic alliance,” the statement adds.
“This alliance will allow us to cross our borders and provide comprehensive and efficient wealth management services to our clients,” commented Mario Sosa, partner of SORO Wealth.
Latin America and the Caribbean have seen a greater share of U.S. development assistance during Joe Biden’s administration, which has had a notable impact on the environmental sector, elevating it from third to second place in budget allocation, according to a BBVA report.
While the government and civil society sector has held the top spot for assistance to Latin America and the Caribbean under both Donald Trump and Joe Biden, environmental assistance has risen from third to second place in terms of the proportion of funding allocated during Biden’s administration.
Differences can also be seen between the Trump and Biden administrations regarding the purposes for which environmental assistance has been allocated.
Trump focused more on agricultural policy activities, rural development, and water, whereas Biden has placed greater emphasis on biodiversity.
For instance, environmental protection policies were dominant in both administrations, but this focus is more pronounced under Biden, who has allocated 59.4% of environmental assistance to this area, over 10 percentage points higher than his predecessor. Under Trump administration, environmental protection policies received 48.5% of environmental assistance, the bank adds.
Another noteworthy point is that during Trump’s presidency, agricultural policy and rural development (including activities such as promoting agroforestry systems and food security) had a larger share of environmental assistance, with 38.2% allocated to this purpose. Along with water and sanitation activities, which accounted for 8.9% of environmental aid, these two areas together comprised 47.1% of assistance in this sector.
Under Biden, the share of agricultural policy and rural development has decreased to 18.1% of environmental assistance. In contrast, funding for biodiversity, which was in fourth place under Trump, has risen to third place under Biden, accounting for 9.6% of environmental assistance. Multisectoral aid has also gained more importance under Biden, representing 6.6% of environmental assistance, while the proportion focused on water and sanitation has decreased from 8.9% under Trump to 4.1% under Biden.
Regarding the distribution by country in Latin America and the Caribbean, during Donald Trump’s administration, four countries accounted for two-thirds of the aid in this sector: Haiti (20.2%), Colombia (16.2%), Guatemala (14.3%), and Honduras (7.4%).
Under Biden, six countries now represent two-thirds of environmental assistance: Colombia, which has risen to first place with 17.6%; Guatemala, which has moved from third to second place with 11.6% of aid; Haiti, which has dropped from first under Trump to third under Biden with 11.5%; Honduras, which remains in fourth place with 10.2% of assistance in this sector; Brazil, which under Trump was in seventh place, now rises to fifth with 6.9%; and finally Mexico, which has moved from eighth place under the Republican administration to sixth, representing 6.4% of aid for the sector.
Overall, U.S. aid to the region is distributed as follows: 29.7% for Government and Society sectors, 18.6% for Environmental Assistance, 12.1% for Emergency Response, and 11% for Conflicts, Peace, and Security.
Countries Receiving the Most Aid Across All Sectors
Donald Trump provided the most assistance to Colombia, with 33.2% of aid received, followed by Haiti with 15.5%, and Mexico in third place with 10.4% of the total received. Hemispheric projects, those involving participation from Latin American and Caribbean countries along with counterparts in North America, accounted for 7.3%, while Peru ranked fifth with 5.9% of the assistance received.
Biden, on the other hand, has prioritized hemispheric projects in general, with 31.5% of aid provided so far by his government to the region. Colombia follows in the next position, with a 17.7% share, ahead of Haiti (9.6%), Guatemala (5.3%), and Honduras (4.7%).
Thus, Mexico has dropped from third place in aid received under Trump to sixth place during Biden’s administration, mainly due to increased focus on Central America, with Guatemala and Honduras in the current administration. Another point to highlight is the reduction in Colombia’s share, which under Trump represented 33.2% of the aid received in the region, while under Biden, it has almost halved to 17.7% of the total disbursed to Latin America and the Caribbean.
Despite the market correction in early August, investor optimism has not been affected. According to BofA’s monthly manager survey, 76% continue to expect a soft landing and a Fed action, now, of four or more cuts to ensure that this expectation of a soft landing is met.
However, the survey picks up that global growth expectations in the August survey fell sharply by 20% compared to July, in fact a net 47% of respondents expect a weaker global economy in the next 12 months. “Growth expectations and risk appetite declined in recent weeks due to the yen volatility shock and weak July employment data,” notes the BofA survey.
As a result, investors increased cash levels again for the second consecutive month, rising from 4.1% to 4.3%. “Our broader measure of FMS sentiment, based on cash levels, equity allocation and economic growth expectations, fell to 3.7 from 5.0 last month,” the firm notes.
As for monetary policy, 55% of investors believe that globally it is too restrictive, the highest figure since October 2008. In this regard, they point out that investors’ belief that policymakers should ease quickly is driving expectations of lower rates, which is why 59% expect lower bond yields, the third highest figure on record (after November and December 2023). Bond yield expectations are also lower, a sentiment that has been increasing month-over-month.
Coupled with monetary policy expectations is the conviction that a “soft landing” of the economy will be achieved, a conviction driven by the likelihood of lower short-term interest rates. Specifically, 93% of FMS investors expect lower short-term rates 12 months from now, the highest figure in the past 24 years.
Asset Allocation
When it comes to talking about allocation within investors’ portfolios, the survey shows that in August investors rotated into bonds and out of the equity market. “The allocation to bonds increased to 8% overweight from 9% underweight. This is the highest allocation since December 2023 and the largest monthly increase since November 2023. In contrast, the allocation to equities fell by 11%, which is the lowest allocation since January 2024 and the largest monthly decline since September 2022. Notably, in absolute terms, 31% of FMS investors said they were overweight in equities, down from 51% who said so in July.
“In August, investors increased allocation to bonds, cash and health care and reduced allocation to equities, Japan, the Eurozone and materials. Investors are more overweight in healthcare, technology, equities and the U.S., and more underweight in REITs, consumer discretionary, materials and Japan. Relative to history, investors are long bonds, utilities and healthcare and are underweight REITs, cash, energy and the Eurozone,” BofA notes.
Finally, two curious tidbits of information left by this month’s survey is that the largest regional equity allocation was to the U.S., while the allocation to Japanese equities experienced the largest one-month drop since April 2016. “As a result, global managers’ allocation to U.S. equities relative to Japanese equities increased to the highest level since November 2021,” the survey concludes.
