From Moargan Stanley today:
Investors largely shrugged off the factor rotation on Feb 4th as an isolated event, but it shouldn’t be dismissed – higher factor volatility is structural and is here to stay. Funds are taking bigger factor bets, positioning is crowded, leverage is high, and factor correlations are getting more unstable – all of which mean that future rotations will occur again (probably soon), and will likely be violent. While fully acknowledging that Fed liquidity is supportive of Growth stocks, it’s also true that the consensus believes the rally in Growth will continue. As a result QDS thinks the bar is low for an unwind should the economy change in either direction – a growth scare is the worst outcome for most investors, but growth acceleration can be painful too.
In this environment investors should consider:
