Economy

Some seasoned stock market investors may be calling to buy the dip, but BlackRock just isn’t there yet. The world’s largest asset manager says that valuations just aren’t there yet and assume that in combination with the Fed tightening cycle and thin profit margins there is too much risk. The confluence of factors among inflation, Ukraine-Russia War, and Fed tightening have sent volatility shockwaves through bond and equity markets in the last couple of months. There are other investors who see it the same way as BlackRock, and want a much more prominent spike in the VIX in order to prompt a buy back. The bearishness isn’t completely pervasive as analysts on average are expecting profits to grow by over 10% across the S&P this year.


Finsum: The Euro area could already be in a recession in large part due to the war, which could drive more value in US assets or trigger a recession stateside.

There is no hiding the huge influx in passive investing over the last couple of decades as a direct result of the ETF boom, but the rise in passive investing is causing more market volatility according to a new academic study. Theoretically with more passive investors active traders will become more aggressive and individual stock demand should be unchanged, but according to the study by UCLA it has increased market vitality and reduced efficiency. Even the skyrocketing number of algorithmic traders can’t offset the passive investors. Markets have far fewer signals and traders to rely on to gain underlying information about a stock, which creates an empty void that is filled up with volatility. Moreover, the paper speculates that as more ESG funds popup this will exacerbate the passive volatility problem.


Finsum: Passive investing has surely increased the average trader's utility, but it comes at the cost of a more efficient market and higher future volatility.

Environmental, social, and governance investing has morphed into a behemoth says, industry insiders, and is so far from its roots that a course correction is needed. Experts and pioneers in the field are disappointed by the amount of greenwashing and fudging in order to meet regulatory standards. ESG has ballooned to approximately $40 trillion and most of the gains have come in the last year. Those in the field want better oversight from the government or non-profit third parties rather than those incentivized to be more lenient. Original ESG was created to mitigate environmental risk and incentivize better behavior, but it’s so over bloated and bound to burst. If regulators in the Biden admin step up like they are signaling it could mean catastrophe for ESG investing.


Finsum: More stable guidelines to remove greenwashers are a must, but it will come at a cost.

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