Goldman warns high investor conviction could amplify volatility as sentiment shift

Investing.com -- Goldman Sachs told clients in a note Monday that cross-asset positioning has turned more defensive, warning that high investor conviction could lead to bigger market swings.

Goldman’s sentiment and positioning indicator fell to the 46th percentile, the lowest level since April, even as global PMIs remain strong.

Analyst Christian Mueller-Glissmann said the biggest drags came from stronger fixed income fund flows, a sharp drop below zero in the bank’s Risk Appetite Indicator, and increased positioning in safe havens such as gold and the yen.

“Equity volatility increased modestly but much less than bond volatility and systematic investors’ positioning (CTA, risk parity) remains ‘risk-off’,” he wrote.

Hedge fund net leverage has also fallen sharply in recent days, while gross leverage has remained broadly unchanged.

The AAII survey shows that conviction is high, with few neutral respondents, though bulls and bears are evenly balanced.

“Historically, at conviction levels above the current level, subsequent returns to neutral AAII readings are showing a higher volatility vs. those with lower conviction levels,” the analyst said.

Fixed income remains the clearest destination for fund flows, the bank said. Bond flows are outpacing equity flows in both U.S. and Western European funds, led by short-term government and inflation-protected bond funds.

Within equities, momentum ETFs recorded an estimated $5.1 billion of outflows in September, among the largest monthly outflows in recent years. Sector flows also rotated toward defensives, with telecoms, utilities and infrastructure attracting inflows.

Original Article

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