(Bloomberg) -- There could be “a little squall” in equity markets if the Federal Reserve cuts interest rates by a quarter percentage point next week because of lingering hopes of a larger move, according to Cambiar Investors LLC.
The Denver-based firm with about $10.5 billion assets under management is holding an elevated amount of cash given current uncertainties, Chief Investment Officer Brian Barish said in an interview. Cambiar continues to have exposure to cyclical shares given the recent upturn in economic data, he added.
The S&P 500 Index’s trend higher over the past couple of years “does look in danger if the markets fail to follow through to the upside after the next Fed meeting,” Barish said. “I’d say the Fed probably disappoints by cutting 25 basis points -- even if that’s almost certainly what they will do -- and we get a little squall.” The gauge is up 19% so far this year.
The Cambiar Global Ultra Focus Fund’s performance ranks it in the top 5% among its peers in 2019, while the Cambiar Global Equity Fund is in the top 10% in its group.
Barish, who has more than 30 years of investment experience, is concerned about what he calls a “shallow market hypothesis.” Stock markets have become very thin because so much trading is from passive and quantitative funds, he said. Strategists from JPMorgan Chase & Co. and Goldman Sachs Group Inc., and even U.S. President Donald Trump have also expressed concerns about risks from a lack of liquidity.
“Old definitions of market breadth and volumes indicating excessive exuberance or speculation are not usable,” he said. “The markets get in trouble when there is a change in direction, a trend line gets broken. Then the computers and algos kick in and there is a lot of autocorrelation of sales and selling pressure.”
That means there is a much higher propensity for stock market “squalls” -- episodes with elevated selling pressure and stock price dislocation, he said.
Here are some of Cambiar’s investment views:
- Buying semiconductors, chemicals, health-care services and selective aerospace names
- Finding good value in European aerospace and industrials
- German utilities are now candidates for investment
- Would not buy public companies in China right now
©2019 Bloomberg L.P.
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