Due for a Bounce but the Rallies Keep Failing

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I don’t remember a time when there were so many negatives — and how and when they would start to impact the US economy. I think I know how the economy is doing, but why not ask ChartGPT? 

“The United States is expected to keep churning out growth in 2024. The International Monetary Fund expects the American economy to expand 2.1% this year — more than twice its forecasts for growth in the major advanced economies Japan, Germany, the United Kingdom, France and Italy.”

That's all fine and dandy, but this doesn't cover the blistering geopolitical problems that are spiraling out of control and it doesn't cover the pension funds mass exodus from pulling billions out of the stock market. After record runs and extreme risk, the funds are taking money out of stocks and rotating into bonds. 

The largest US fund, the California Public Employees’ Retirement System (CalPERS), is planning to move close to $25 billion out of equities and into private equity and private debt. It isn’t just the pension funds…the public has been dialing back expectations and moving toward lower-risk assets like bonds and notes. This can be a tricky venture, when the funds sell stocks they risk potential stock market gains. 

It's a big deal. 

Goldman Sachs analysts estimate that pensions will unload $325 billion in stocks this year, up from $191 billion in 2023 as large retirement funds rotate their positions. The California Public Employees’ Retirement System reduced its target stock allocation to 37% from 42% while ramping up investment in private equity and private debt. The fund expects those two asset classes to return 7% to 8%. It's not just the CalPERS moving money out of stocks. The $260 billion New York State Common Retirement Fund said earlier this month that it plans to shift money into private equity, real estate, and real assets. The $80 billion Alaska Permanent Fund Corp. is cutting back on equity risk, too. 

This is not exactly an encouraging sign. Many of the big retirement funds have outstanding track records and as I have always said, “if you want to know where the S&P is going, follow the money.”