Economic data on both sides of the Atlantic pointing to a slowdown is rattling investors' nerves and is likely to keep them on the sidelines for the rest of the month, Barclays Capital expects.
“Current market jitters seem to be driven primarily by the volatility of data over the past few weeks,” said Sreekala Kochugovindan, an asset allocation strategist at Barclays Capital in a research note on Thursday.
Data indicates the hedge fund community is positioned as neutral on equities, according to Kochugovindan who said short S&P500 positions accumulated in the turbulent spring have now been covered.
“In terms of retail investors, US mutual fund flows highlight the recent shift towards a more cautious investmentstance during May, with net equity outflows being recorded for the first time since the growth scare of last summer,” he said.
“Retail investors had started the year by switching out of bond funds and into equities, but quickly reversed this trend as global growth concerns took hold,” said Kochugovindan.
“Against a backdrop of softening global growth and increased uncertainty, it seems that investors may prefer to remain on the sidelines until the data stabilizes into one clear direction,” he added.
It could become unclear which way the economy is really headinguntil we get June’s payrolls data in early July, according to Kochugovindan.
“Our US rates strategists recommend holding long positions at the long end despite the recent rally; across all markets, we would be cautious in the short end, given that valuations are rich and positions seem extended,” he said.
“Equities may continue to trade defensively if growth concerns persist. However, a 10 percent sell-off in line with last summer's growth scare seems unlikely. All in all, a choppy trading environment seems to characterize the month ahead” said Kochugovindan.