Financial service provider State Street Global Markets has released the results of its Institutional Investor Indicators for September, revealing a cautious return to risk among institutional investors following a volatile August.
The State Street Risk Appetite Index showed a modest uptick in risk-taking at the end of August, reversing a more cautious start to the month.
“August is typically a quiet period for investors, but not this year,” noted Marija Veitmane, head of equity strategy at State Street Global Markets. “The month began with the year’s biggest spike in volatility, as tech stocks sold off and the carry trade unwound. Institutional investors quickly responded by selling risky assets, moving out of equities, and shifting into cash. However, as the market re-priced the Federal Reserve’s expected rate-cutting cycle, risky assets quickly recovered their losses.”
State Street’s Institutional Investor Indicators are based on data from its $44.3 trillion assets under custody and administration. The indicators measure investor confidence by analysing buying and selling patterns across equities, foreign exchange, fixed income and commodities, capturing broader trends in risk appetite and asset allocation.
Institutional investors shift back to neutral, State Street index shows
The recovery gained momentum as Federal Reserve chairman Jay Powell’s remarks on adjusting policy eased market concerns. “Powell’s comments sparked a rebound in risk assets and led to more constructive equity and FX flows as the month closed,” added Veitmane. “We are closely monitoring these flows to see if they will ignite a risk rally or if recessionary fears will dampen the recovery.”
Despite the recovery in risk assets, institutional investors remained cautious, increasing their allocation to cash by 55 basis points during August, while reducing allocations to equities and bonds. This cautious positioning suggests they are bracing for potential future volatility.
“Institutional investors reduced their stock allocations after the early August sell-off, despite the equity rally in the second half of the month,” Veitmane said. “Their equity allocations are lower than in previous rate-cutting cycles, indicating that investors may be better prepared for potential market weakness.”
