“Rather than an unbridled rush back into risk, our institutional investors indicators are more consistent with a measured reduction in pessimism,” said Michael Metcalfe, head of macro strategy at State Street Global Markets in a press release published on 6 December 2023. Photos: State Street; Shutterstock. Montage: Maison Moderne

“Rather than an unbridled rush back into risk, our institutional investors indicators are more consistent with a measured reduction in pessimism,” said Michael Metcalfe, head of macro strategy at State Street Global Markets in a press release published on 6 December 2023. Photos: State Street; Shutterstock. Montage: Maison Moderne

State Street’s risk appetite index for November 2023 showed that long-term investor flows were balanced, while its holdings indicators showed that cash holdings fell by 0.9%.

State Street Global Markets on 6 December 2023 released their institutional investor indicators--which include the and the --for the month of November.

“Both equity and bond markets rallied impressively in November, but they did so on the back of less positive news on US growth and earnings downgrades. This was a rally once again built on the hope of interest rate reductions to come; a driver that has failed to sustain market gains earlier in 2023,” said Michael Metcalfe, head of macro strategy at State Street Global Markets in a . “The response of long-term investors was, nevertheless, dramatic. At the beginning of November more than half of the metrics that make up our risk appetite index were pointing to defensive behaviour, by the end of it, risk on and defensive behaviour was finely balanced. The improvements in sentiment were especially clear in equity and foreign exchange markets.”

The firm’s risk appetite index increased to zero in November (from -0.55 in October), meaning that long-term investor flows were “balanced.” They did not add or subtract from risk across asset classes.

“Rather than an unbridled rush back into risk, our institutional investors indicators are more consistent with a measured reduction in pessimism, which makes sense given the lingering uncertainty as to whether the ‘Fed put’ really is back,” added Metcalfe.

Cash holdings down, bond holdings underweight

Long-term investors’ cash holdings fell by 0.9 percentage points in November (to 20.2%), noted State Street, but remain above their 25-year average. “As spectacular as November’s price action, this suggests there remains ample cash on the sidelines, if the investment environment is compelling enough,” noted Metcalfe.

“We would note that even though year-ahead outlooks from the investment community are chock-full of buy bond recommendations, long-term investor bond holdings remain underweight and close to a 14-year low,” said State Street’s Metcalfe. Fixed income allocations fell to 28.2% during the month of November.

State Street’s investor indicators analyse the buying and selling patterns of institutional investors, explains the firm. Their monthly holdings indicator shows the aggregate holdings of institutional investors across stocks, bonds and cash, with changes in this indicator due to “changes in the relative valuations of asset classes or investor flows (trades) that reallocate portfolios across asset classes.”

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