State Street Global Markets on 10 September 2024 released its institutional investor indicators--which include the  and the --for the month of August.

Its risk appetite indicator, which measures investor flows across equities, FX, fixed income, commodity-linked assets, and asset allocation trends, increased from 0 to 0.09. “August started with the biggest spike in volatility all year,” State Street said in its press release, and in response, institutional investors sold risky stocks, currencies and switched from stocks to cash. “However, this bout of risk aversion did not last as the market quickly re-priced the Fed’s rate cutting cycle. Risky assets recovered their losses, while institutional investors started dipping their toes back into risk trades.”

“Fed chairman Jay Powell soothed the market saying that the time has come for policy to adjust, sparking a rebound in risk as well as more constructive equity and FX flows into month end following positioning adjustment,” commented Marija Veitmane, head of equity strategy at State Street Global Markets. “We are now watching those flows closely to see if the sparks of more constructive risk sentiment will fire up a risk rally or if recessionary fears will turn them into ashes.”

Cash holdings increase a bit

Cash holdings inched up in August, said the data from State Street, but stayed more or less around the long-term average.

“Institutional investors have responded to the sharp sell-off in equity markets in early August by reducing their allocations to stocks, despite the equity rally in the second half of the month. We find it encouraging that their allocation to stocks is lower than at the start of the previous rate cutting cycles,” added Veitmane. “This gives us hope that even if economic data takes a turn for the worse, institutional investors are somewhat prepared for the market weakness, suggesting potentially less aggressive sell-off.”

Released every month, State Street’s institutional investor indicators measure risk appetite quantitatively by analysing the buying and selling patterns of institutional investors. The risk appetite index is calculated by measuring investor flows across equities, FX, fixed income, commodity-linked assets and asset allocation trends, while the holdings indicator looks at how investor portfolios are allocated toward equity, fixed income and cash.