US Investors diversity investments as TINA wanes
According to a recent survey by Bank of America, fund managers’ equity allocations are about 2.2 points below the long-term average, while they increased their weighting on bonds, emerging markets, cash, and commodities.
Goldman Sachs has named this change “TARA” (there are reasonable alternatives), while Deutsche Bank has called it “TAPAS” (there are many alternatives) and Insight Investment thinks it is “TIARA” (has an actual alternative) to stocks. Many investors are now pouring money into assets other than the US stock market, including emerging market assets, government bonds, and cash. The S&P 500 fell 19% in 2022 but has rallied over 5% this year.
However, corporate profits, which investors see as the single most important driver of the stock’s rise, have leveled off. Companies in the S&P 500 are expected to see profits fall 4.6% in the fourth quarter of 2022, according to FactSet. Analysts also expect S&P 500 profits to decline in the first two quarters of this year. Furthermore, the valuation of the US stock market is still not cheap, with the S&P 500 trading at around 17.5 times 12-month forward earnings, well above the 10-year average of 17.2.
Many investors argue that stocks are becoming more volatile than other assets if the economy slips into a recession. If inflation continues to heat up, the Fed is likely to raise interest rates more aggressively, and many analysts think that the stock will hardly be able to rally effectively in such a scenario. Volatility in many of the markets identified by investors as alternatives to stocks has also been observed in recent months, following a rebound at the start of the year. Copper fell the most in a month since July, and the MSCI Emerging Markets index had its worst month since September.
Despite these challenges, many investors believe that diversifying investments is key to success in today’s market. As bonds yields hit multi-year highs in 2022, investors withdrew a record $216 billion from taxable bond funds and $119 billion from municipal bond funds, causing the major bond indexes to fall to record lows.
The recent market developments have prompted many investors to rethink the TINA concept and look for alternative investment options. While the US stock market is still not cheap, investors are diversifying their portfolios with emerging market assets, government bonds, and cash. Although volatility and other challenges remain, diversification is essential to success in the current market environment.
US Investors diversity investments as TINA wanes
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