Our call for a squeeze this year was largely predicated on systematic strategies raising exposure as equity volatility fell (Equities in 2023, Dec 02 2022). With equity vol down from extremely elevated levels back into its historically normal range, and systematic strategies positioning slightly above neutral, the bulk of their move is done. Discretionary investors on the other hand have moved right past positive news and data recently such as large beats and a robust inflection up in Q1 earnings, robust Q1 US GDP growth (ex-inventories), a tick up in the US ISM, and the global composite PMI rising to the highest in 16 months to above its historical median. They instead remain firmly focused on potential risks including bank stresses, a credit crunch, the debt ceiling, earnings recession, macro recession, elevated inflation and of course policy uncertainty, especially related to the FOMC. This is best captured in the tight inverse correlation over the last 15 months between discretionary investor positioning and bond vol (MOVE) which continues to be very elevated even as vols across other asset classes have returned to normal ranges. - Deutsche Bank
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