Short happiness — Joyless times for many investors. Flows to equities are discouraging. Equity hedge fund performance appears disappointing.
Alpha compression — Dearth of alpha. Close to record low return dispersion at asset, country and sector levels. Reflects macro risks and low investor risk appetite.
Valuation compression — Around multi-decade lows for top vs bottom quintile stocks (12m forward P/E). Reflects investors’ inability/unwillingness to price future.
Wall of worry — Main macro risks are sovereign crisis, US slowdown, EM inflation. Means that the macro fog is very thick. Investor visibility/confidence very low.
Capitulation — None in real data or share price performance. Some sign in valuation (crossover, equity vs. IG credit). Some in US too (CESI, panic/euphoria).
4Q rally — Cocktail of reduced macro uncertainty and ‘collective’ action from equity HFs needing performance boost could drive sharp 4Q rally for European equities.
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