LIVE MARKETS-Crowded trades, thin ice: Kairos eyes 5–8% pullback
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CROWDED TRADES, THIN ICE: KAIROS EYES 5–8% PULLBACK
Stock markets are facing a growing risk of a volatility spike and a potential correction, as calm waters mask underlying fragility, according to Alberto Tocchio, head of global equity and thematics at Kairos Partners.
He cautions that the recent rally has been dangerously narrow, creating an unstable foundation for the market. "Beneath the apparent calm of the indices, there was significant dispersion," Tocchio says in a interview with Reuters, noting that recent market strength is highly concentrated.
On Wall Street, a handful of meagcap tech stocks account for the vast majority of earnings growth, he notes, while in Europe, the financial sector is single-handedly propping up an otherwise weak earnings season.
Sectors such as autos, luxury, and chemicals are showing significant weakness. "If you exclude [tech and banks], I'm not sure the market has what it takes to keep going," he says.
Tocchio notes that investors are not positioned for a correction, with portfolios heavily loaded into the same "darling" stocks. In response, he has tactically reduced exposure and purchased put options to hedge against a potential market drop which could reach 5-8% .
He advises a tactical rotation out of crowded consensus trades and into underperforming sectors with solid fundamentals, such as pharmaceuticals or software. However, he clarifies this is a short-term defensive move.
Tocchio believes strong long-term themes like artificial intelligence remain intact, and a correction would offer a better entry point to buy back into high-quality growth stocks at more attractive valuations.
(Danilo Masoni)
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