Shallow dips for dip-buyers
The S&P 500 delivered another closing record high at the end of last week and the bias remains for more in the way of upside. Delayed Fed tapering expectations will likely play a lesser role in any further rally, with momentum likely to come from still underweight and cash-heavy investors looking to put money to work.
The combination of Fed tapering fears heading into the Sept FOMC meeting and the subsequent budget battle in Washington led to many investors choosing to stay in cash and underweight risk.
While some have chosen to dip their toes back in the risk waters again, others have been sitting on the sidelines waiting for a dip, which has thus far proved elusive. Those hopeful of a dip in the markets will be less amenable to sitting on the sidelines, as prices go ever higher.
The end of October is also the fiscal year-end for many funds, so the pressure will be especially heavy to provide the correct snapshot. The longer the dips stay shallow, the more likely it is that we will eventually see another explosive move to the upside.
The liquidity-fuelled rally is set to continue and unlikely to do much damage to bonds, which are also being aided by less aggressive upside expectations on yields.