LIVE MARKETS-Time to look at reducing risk?

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TIME TO LOOK AT REDUCING RISK?

After a sharp market recovery in May that saw the S&P 500 .SPX clock its biggest monthly gain since 2023, it may be time to consider reducing risk exposure amid growing uncertainties, according to Alberto Tocchio at Kairos Partners.

While markets have shown resilience, Tocchio, head of Global Equity and Thematics at the Italian investment boutique cautions investors against complacency.

"It looks as though we're back to a 'normal' market environment, seemingly armoured against bad news. Yet, the initial crash and the recovery that followed happened at a pace rarely witnessed in market history, and maybe it's a mistake to get too comfortable with this situation," he says.

Tocchio highlights that initial tailwinds like retail investor support and buyback programs are now slowing as markets have become more expensive. He points to several key concerns: unresolved U.S. tariff issues, particularly with China; the potential for a U.S. fiscal deficit surge due to proposed tax cuts reliant on uncertain tariff revenue; and rising global interest rates, with U.S. 30-year Treasury yields at 2007 highs.

"The real question is no longer 'what could go wrong', but 'what still needs to go right' for the rally to continue".

With equity markets near highs, Tocchio concludes that "it is perhaps time to reduce risk exposure, increase portfolio quality, and leverage low volatility to hedge with options."

(Danilo Masoni)

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