Global Investors Hold Record $64.1 Trillion In US Financial Assets

We are currently seeing a powerful combination of factors:

1️⃣ More than 60% of S&P 500 stocks are outperforming the index, showing the strongest numbers since 2003.

2️⃣ Foreign investors hold a record amount of US financial assets.

3️⃣ Markets expect the Fed to begin aggressive rate cuts starting July.

Let’s break down what this means.

Strong Market Performance. When most stocks are rising — not just a handful of mega-caps — it typically signals a bullish cycle, broad institutional demand and lower bubble risk. Historically, such readings appear either at the beginning of a new bull market or when it gets matured. Back in 2003, such a similar performance marked the start of a multi-year rally.

Record Foreign Holdings. Actually, it’s a sort of “double-edged news". On the one hand, it supports the market and shows the global demand for US assets along with the confidence in the country’s economy. But on the other one, it creates vulnerability (just if the sentiment shifts, outflows can accelerate) and volatility remains elevated, being very sensitive toward the Fed’s possible monetary policy surprises. The risk increases asymmetrically in this case.

Expectations of Rate Cuts. If the market is correct, regarding July terms, US T-bills yields will  gradually decline along with the greenback,  equities will get supported while gold and commodities will benefit. However, the key risk: what IF it goes NOT as expected? The stronger the consensus, the higher the surprise risk, as they say.

Summing up, the market is currently strong and broad, and supported by easing expectations. But at the same time, it is extremely sensitive to inflation data and any Fed communication.

Right now, the optimal stance is stay flexible (balanced but pro-risked) and be ready for rebalancing towards less riskier allocation, should inflation surprise.

👉Below are three possible structured models depending on clients’ risk profiles:

Moderate Growth Model (balanced investor)

Capturing strong equity momentum while gaining from falling yields and protecting against inflation/geopolitical risk, here goes the following asset class allocation:

    Pro-Risk Tactical Model (bullish on possible Soft Landing)

Gaining maximize upside if the Fed cuts the rate and no recession would follow:

Defensive Rotation Model (if the Fed disappoints)

Should inflation re-accelerate or the Fed delay further cuts, this model might protect capital during the terms of the spiked yields:

  Trade smart with Headway