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According to Citigroup Inc., many portfolio managers are becoming increasingly positive, despite the stock market trading near all-time highs. “Investors want markets to rise, highlighting the fact that investing professionals are paid to participate, not to sit back and wait for better entry points,” Citi analysts wrote in a research note released at the end of last week. “As a result, they must persuade themselves that everything is fine.”

Meanwhile, according to the research, the percentage of businesses in the S&P 500 SPX, +0.35 percent that “soundly” surpassed the stock market benchmark dropped dramatically in the second quarter. According to the figure in the Citi Research paper, only approximately 10% of the index’s constituents outperformed the S&P 500 by 10% over that time frame, down from more than 30% during the first three months of this year.

According to the Citi analysts, “we find investors unduly comfortable with value being primarily a result of low interest rates, even while equity risk premiums are solidly above average levels prior to the global financial crisis.” “Interest rate suppression means that the Fed or the ECB’s estimates for long-term GDP growth aren’t particularly convincing.” Read: Bond yields and tech stocks resemble the dot-com boom’s “severe anomalies,” according to Morgan Stanley According to FactSet data, the S&P 500, Dow Jones Industrial Average DJIA, +0.36 percent, and Nasdaq Composite COMP, +0.21 percent ended last week at record highs, with the S&P 500, Dow Jones Industrial Average DJIA, +0.36 percent, and Nasdaq Composite COMP, +0.21 percent maintaining their gains in Monday afternoon trading. “We frequently receive pushback from more bullish investors who claim that profits and liquidity support further gains and that we are excessively concerned,” the Citi analysts wrote. “As a result, the feeling that ‘this time is different’ is real and unsettling.” Meanwhile, the Federal Reserve has left its benchmark interest rate near zero, signaling that, based on Fed officials’ median forecasts, lift-off may occur in 2023 at its policy meeting in mid-June. Barclays raised its forecasts for the Fed to begin cutting asset purchases under its quantitative easing program as soon as this year after the meeting ended with what many investors and analysts regarded as a hawkish swing. However, the yield on the 10-year Treasury note has fallen since then, owing to fears about peak growth and technical factors such as short covering, according to some market observers. In Monday afternoon trade, the 10-year yield TMUBMUSD10Y, 1.373 percent was about 1.37 percent, compared to about 1.57 percent on June 16, the day the Fed meeting ended. See also: Is your 10-year Treasury note interest being eaten up by inflation? Meanwhile, according to the Citi analysis, the S&P 500’s increase this year “significantly exceeds median or average returns.” According to the analysis, the S&P 500 gained nearly 15% until July 8, growing around 8.2% in the second quarter and about 5.8% in the first three months of 2021. According to Citi, the S&P 500 has had a median first-half performance of 3.8 percent since 1900. The analysts also commented on this year’s battle between growth and value companies, with the Russell 1000 Value index RLV, +0.36 percent trailing the Russell 1000 Growth RLG, +0.20 percent index in the second quarter after defeating it in the first, according to the study. According to Citi analysts, “we continue to expect that a ‘last gasp’ value rise is likely” as the economy recovers from the pandemic. Despite this, the analysts added that “we remain on the side of caution at this stage, even if we are unable to determine the particular cause of the next drawdown,” amid larger concerns that “complacency begets risk tolerance.” Read: Should investors believe a shift in the market narrative that accompanied a wild week for U.S. stocks?/nRead More

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