This Rally Isn't For Real

After the Fed’s
shocker decision not to taper quantitative easingyesterday, the S&P 500 and the Dow Jones Industrial Average shot up to all-time highs.

However, Société Génerale currency strategist Sebastien Galy notes that investors aren’t rotating into stocks, perhaps because they’re worried that this rally won’t last:

Asset allocation moves haven’t happened yet as far as I can see. The volume in [the S&P 500] were the highest in the month. However, the index did not increase on the close of the market when large sizes are traded. This suggests that little has been done in real asset allocation in the U.S. session. U.S. futures point up but not aggressively so, suggesting there is no expectation of heavy reallocation into U.S. equities. Similarly, European equities gapped higher at the open and stayed there.

Two alternatives face us: one, they are long risk and happy to ride the wave, reluctant to add in what they perceive could be a policy mistake, or they will add in the next few days. I would venture it is a mix of the two with the first more probable. The rise of ETFs though penalizes what is often good risk management, suggesting that institutional investors will be forced into this rally. In [emerging markets], the squeeze in bearish positioning continues its aggressive move helping the USD to weaken across the board and EUR/USD to take out topside strikes (see EURUSD Curncy OMST for a map of strikes in Bloomberg).

Right now, S&P 500 futures are up 0.3%.

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