Get free access Tier 1 Alpha's Market Situation Report & more this week ONLY during Free All Access Week.
Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.
The National Association of Active Investment Exposure index reflects the two-week moving average of exposure to US equity markets as reported by its member institutions. The NAAIM exposure currently reads at 57.98.
The NAAIM serves as a dependable contrarian gauge. No offense, active managers; many of us are in the same boat. Check your emails from August 18th and 28th for further insights.
Currently, the index finds itself at a "just right" exposure level – not too high or too low. We tend to find it more compelling when it's at the extremes, so there is little information currently. In our recent webcast, we discussed the challenges active managers/Pod shops faced throughout 2023. David pointed out the contradictory fundamental signals active traders receive week after week.
Active managers are aware that typically, there's a 14-month delay from when the 3-month and 10-year yields invert – pointing to a December 2023 recession. They're also clued in about student loan repayments resuming in October, the looming CRE debt crisis, challenges with auto subprime loans, consumer credit card spending, tightening lending criteria, the robust dollar, the dip in GDI, and the all-time low in housing affordability. With such a stark disparity between data and market reactions, it's immensely challenging for them to take substantial positions at opportune moments.
This is where flow comes into play. As long as there's employment, positive passive flow remains. When the employment falters, the flows can reverse. An oversimplification, perhaps, but essentially accurate. The NFIB disclosed in August that 40% of small enterprises had vacant positions they couldn't fill, suggesting continued support for flows even as those incremental flows weaken in magnitude due to slowing employment gains.
Learn more about the Market Situation Report written by Tier 1 Alpha.