Institutional Insights:Goldman Sachs Tactical Flow of Funds - February Outlook
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Goldman Sachs Tactical Flow of Funds: February Outlook
Flow Of Funds Checklist: Market technicals are recovering rapidly, and current exposure does not align with the present spot (SPX 6110). The technical overhang from late December (first week of January) has dissipated, and we have entered the typical #January Effect.
a. Significant current equity short base: record gross overall exposure (dominated by shorts) with reduced net exposure
b. High systematic fixed income short nearing critical levels
c. Long (buffer) equity index gamma (indicating recovery)
d. Consequently, liquidity has significantly improved (Jan 1st = $3.50M vs. Today = $15.70M), a 4.5x increase
e. Re-leveraging from volatility-control strategies due to the reset in volatility (VIX = 14.64)
f. Corporate blackout period concludes on Friday 1/24. This is the peak closed repurchase window. The full-year corporate repurchase estimate remains at $1 Trillion.
g. Decrease in sentiment and leverage
h. Favorable seasonal trends for the second half of January – today marks the local January low
i. January Effect inflows: the largest month of the year for equity allocations, including 401k, 529, etc.
Bottom Line: Current positioning does not reflect the ongoing rally in risk assets and may trigger some FOMU (fear of materially underperforming) against benchmarks. We have a favourable technical window for the upcoming month.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!