The Review — 10/04/2018 at 10:45

Return of Market Bears, Rise of Bond Bulls

by
Oscar Ostlund 3

Oscar Ostlund, head of the New York Market Strats in the Securities Division, Goldman Sachs

The bears are back in force. According to the April QuickPoll, the Goldman Sachs Securities Division’s monthly survey of global clients on leading market drivers, negative market sentiment continued to climb amid worries over trade and volatility. Oscar Ostlund, head of the New York Market Strats in the Securities Division, shared his thoughts on the survey’s findings.

Last month’s QuickPoll noted that market sentiment was starting to turn bearish. How has that changed this month?

Oscar Ostlund: The bearish sentiment that we noticed last month has jumped sharply with 51 percent of a record 1,454 survey participants describing their sentiment as bearish on risky assets — the highest reading since March 2016. In the past, a rise in the bearish sentiment has been a contrarian indicator; the last three months when we saw a bearish tone in the markets — March 2016, July 2016 and November 2016 for example — were quickly followed by strong rebounds. Also, what really struck us is that when you slice the answers by region, there are virtually no regional disparities. But the real question here is whether investors have pared back positions in risky assets to match their negative sentiment, and our read is that investors are probably only back to neutral.

What do you think led this change of sentiment?

OO: Overwhelmingly, the top concerns for investors this month are trade and protectionism; and we have seen markets convulse every time the trade war rhetoric heats up. On the bright side, recent positive developments in the NAFTA and the Korea US Free Trade Agreement, or KORUS, negotiations seem to indicate that the most recent tariff announcements between the US and China may be the opening stance of the upcoming negotiations to rebalance trade rather than the desired end game. One risk that seems underpriced on the other hand is the backlash around Big Tech. Very few respondents cited the upcoming congressional hearings as a risk factor, despite the fact that tech stocks are an important part of many portfolios.

Any other surprises this month?

OO: Another surprise this month is that we’re seeing a quiet rise of the bond bulls. While respondents largely expect rates to move higher, a rising number of participants — currently 21 percent, up from 7 percent in January — now expect to see a move lower in rates, implying stronger demand — and higher prices — for bonds.


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