Investor Positioning and Flows Sep 14

Global Asset Allocation Date 11 September 2026 Investor Positioning Strategy Update and Flows

Battling Multiple Catalysts Parag Thatte Amidst several catalysts and large moves across many asset classes (oil, rates, yen) Strategist that have historically been negative, equities have held firmly within a tight range for over a month as has been the pattern following recent earnings seasons. But the Binky Chadha post-earnings-season lull period is ending. Taking stock: Chief Strategist n Oil prices already back to pricing in acute disruption. Oil prices are back in the elevated range last seen from March to May, with the front-month Karthik Prabhu contract 20% above the 6th, a degree of backwardation in the futures curve Strategist seen previously during acute supply disruption fears, albeit not as high as in March (40%). Oil prices are also more than 50% above our measure of Dag Workayehu medium-term fair value based on global growth and the US dollar, well Strategist outside the typical +/- 30% range seen historically. The volatility in oil prices, however, is still relatively subdued, as it is in most asset classes. n Bond positioning nearing negative extremes which have historically coincided with a near-term top in yields. With the 10y yield now close to 5% and at the top of its 3-year range, we note that bond positioning across a variety of measures is near negative extremes (5th percentile) last seen in late 2018 and late 2022. Historically, positioning at these levels has coincided with a near-term top in yields if not a rally. We also note that while yields have been climbing since March, inflows into bond funds have remained very strong, especially into government bond funds. n Recent FOMC meetings have seen equities whipsaw but end up higher for the week, on average. The pattern around FOMC meetings this year has been for equities to rally modestly in the 2 days prior to the decision (median 0.9% ytd) but sell off on the day (median -1.2%) before staging a comeback again to end higher for the week (+0.9%, on average). But how did they do during the last hiking cycle? It was a tale of two halves. The first part of the cycle in 2022 saw equities sell off sharply nearly every FOMC week. But as we noted back then, the key issue for equities was the volatility created by frequent changes in Fed guidance and the speed of hiking, not the hiking itself nor the higher level of rates. Once the Fed shifted to a gradual measured pace of hiking, vol subsided and equities rallied hard during subsequent FOMC weeks (Higher Rates or Higher Vol? Nov 2022). n Volatility across asset classes has remained subdued as is the norm during a strong growth cycle. Despite the barrage of catalysts, implied as well as realized vol across most asset classes remains low. As we have highlighted previously, vol across asset classes tends to be highly correlated, governed largely by the stage of the growth cycle, with

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Investor Positioning and Flows

occasional spikes on shocks. The low levels of vol across asset classes currently are easily explained by very favorable growth and unemployment wWhat To Make Of Vol At 50-Year Lows? Dec 2017w Now exiting the post-earnings-season lull period. As we noted last month, the S&P 500 has rallied (+3%, on average) during earnings seasons in recent quarters. But after the bulk of reporters are done in the first 4 weeks, the following 4 weeks have seen a lull (-0.5%), as the focus shifted from off- the-charts earnings growth to its sustainability. The last 4 weeks following the earnings season have been no different, with equities in a tight range. But we are now exiting that post-earnings-season lull period (Another Post- Earnings-Season Lull, Aug 21 2026w Will we get a rally as we approach the…