Hedge funds seem to be expecting that the US stock market is going to begin to decline once again and have already begun to position themselves for such a fall.
Attitudes have changed over the past ten days as investors appear to now believe that the Federal Reserve will not continue to dominate the future.
The concerns of hedge fund managers have already had an impact on foreign-exchange markets as the value of the US dollar has been decreasing for the past ten days.
Laurence Fletcher writes in “Hedge Funds Brace for Second Stock Market Plunge,”
Hedge funds are getting ready for another slump in stock markets after growing uneasy that surging prices do not reflect the economic problems ahead.”
Investors have been riding on their confidence that the Federal Reserve can “do it all”, and this trust has been built up over ten or eleven years of Federal Reserve support for the stock market as the generator of a “wealth effect” sufficient to drive consumer spending to higher and higher heights.
That era may be coming to an end.
It seems, according to Mr. Fletcher, that hedge funds are preparing for the stock market to reverse its recent rise and have begun to move as other investment sources continue to push the stock markets back toward historic highs.
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