But by many measures, it has now reached striking extremes, masking a humdrum performance from the vast majority of stocks and complicating investment decisions for both those who pick stocks and those who prefer to track indexes. Some warn it is unsustainable or a sign of treacherous market conditions ahead.
“The danger is if you have gone all in,” he said. “For people caught up in FOMO who have gone all in on this very narrow theme, if you discover there are competitors that can enter the marketplace, it does not take very much for your position to reverse quite meaningfully.”Article contentThe artificial intelligence explosion has been a big short-term driver of this concentration, but the clustering has deeper roots. Some of it simply reflects the U.S.
“It does not make sense,” Alex Cabrol, a managing director at TOBAM said. The unravelling of the phenomenon is “not a question of ‘if,’ it’s a question of ‘when,'” he adds, pointing out that previous similar episodes, most notably in the dot-com bubble of 2000, were followed by ugly declines.Article content
This is fast becoming one of the fiercest debates in finance. At heart it is a question about whether the U.S. economy is heading towards a recession that drags down corporate earnings or towards a soft, even barely perceptible economic landing in which the U.S. Federal Reserve somehow nurses inflation lower without harming the economy along the way — the so-called “immaculate disinflation.”
The bank’s above-consensus view on the U.S. economy — it assigns a 25-per-cent probability to a recession over the next 12 months, against a 65-per-cent estimate by the median forecaster — also means it thinks a catch-up is more likely than a catch-down.Article content
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