Investment Insights

Last Week’s Group Activity
According to a note from Citi, long-only managers continued their buying spree last week, with all sectors experiencing net inflows.

Sectors Overview
The largest increases in exposure were observed in:
– Technology
– Real Estate
– Financials

Conversely, the sectors with the smallest inflows included:
– Materials
– Industrials
– Energy

Hedge Fund Activity
Hedge funds were net sellers during the same timeframe, although their activities varied. The most purchased sectors included:
– Health Care
– Consumer Staples
– Technology

Outflows were primarily seen in:
– Consumer Discretionary
– Financials

According to Citi, “Financials and real estate replace consumer discretionary and industrials in the top bucket this week; Materials moves into the bottom 3 replacing communications.”

Market Internals and Correlations
As of last Friday, market internals indicated that pricing reflects expectations of a soft landing.

Mid-August observations by the bank noted a bottoming out of the “stagflation” and “goldilocks” correlations, typically dominated by tech trends. Both correlations rose from their early August lows, while the “overheat” correlation, where utilities and energy typically excel, declined.

A significant increase in “late recession” and “soft landing” correlations has also been noted.

Earlier this year, these themes presented positive correlations, primarily influenced by tech’s performance. Currently, the soft landing scenario aligns with broader market performance.

Citi’s team commented, “We think it is likely that either the soft landing correlation falls back out of favor or tech can make a comeback and meet the soft landing correlation.”

However, due to weaker price action observed this week, they believe the soft landing correlation may be losing steam, although upcoming catalysts could still shift the momentum.