Safety Plays Lock Investors In, But 'FOMO' Lingers In Stocks

In the current investment climate, money managers are seeking both defensive and offensive positions. 

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Risk-averse investors are turning to defensive stocks and Treasuries for safe investments. 

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However, they are also concerned about missing out on a potential stock-market rally, and thus, institutional investors' allocations to equities remain above the long-term trend. 

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While investors are betting that the Federal Reserve will pivot to cutting rates before the year is over, a growing conviction on Wall Street suggests that a recession is looming. This has led to caution among investors, as reflected in the State Street indicator for asset managers' risk appetite, which has not registered a positive reading for the past three months. Despite this preference for conservative plays, investors still appear to be interested in stocks, as demonstrated by the S&P 500's 7.7% gain this year.

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However, there are several factors that suggest caution is warranted. For one, valuations for companies in the S&P 500 are currently high, and history has shown that valuations typically get crushed during recessions. 

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Furthermore, the weakness in regional bank stocks, combined with worries over the businesses they lend to, has led to underperformance among small-cap stocks. 

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Nonetheless, some analysts believe that companies with healthy balance sheets that can weather an economic slump are best positioned for the uncertain path ahead.

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Investors will be watching closely to see where the Federal Reserve takes policy, with the consumer-price index and producer inflation figures expected to provide guidance. While economists generally agree that any recession this year will be short and shallow, 

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investors remain concerned about the potential impact on the market. 

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Nonetheless, opportunities for investment still exist, and some investors are focused on positioning themselves for both positive and negative events. 

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As one expert put it, "the math is just different now," and investors need to be prepared for a market environment without precedent.

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