Equity prices fell again on Tuesday, the continued lack of clarity over Greece and the euro, the uncertainty of what the Federal Reserve's guidance will be on interest rates giving fund managers the excuse to sit on their hands, or possibly don their top hats and head to the race course. The lack of conviction and trading volumes could probably add to volatility in both directions in the coming weeks. The FSTE 100 has retreated approximately 6% from its highs of earlier in the year, and in absolute terms has given up a large part of this year's gains
The bond market is often a good lead indicator ahead of what may be market sensitive announcements, so far Treasury yields have remained stable in anticipation of Janet Yellen's briefing later in the day on Wednesday.
We have commented in the past few weeks on the anecdotal evidence that suggest fund managers have increased cash levels into the summer months. There was more evidence of this when Meryl Lynch released its latest fund manager survey. Cash levels as reported by the survey have now reached 4.9% of the total portfolio, and equity allocations had fallen to an eight month low.
June was the month many economists felt at the start of the year would see the first interest rate rise in the US. Now no-one is predicting a rise to take place later in the day today. The expectation is that Janet Yellen may prepare the market for a rise in September. In a report ahead of the meeting Goldman Sach's believes the Federal Reserve may well downgrade its outlook for the economy and suggests the capital markets may have to wait until December for the first move since 2006.
Being overly exposed to cash feels very consensual at the moment, sitting with the herd is always a tricky position to be in, however time will tell. Equity investors seem comfortable holding higher Equity prices fell again on Tuesday, the continued lack of clarity over Greece and the euro, the uncertainty of what the Federal Reserve's guidance will be on interest rates giving fund managers the excuse to sit on their levels of cash with little in the way of income, rather than risk capital loss in equities.