Bank of America’s monthly global fund manager survey and the bank’s own views don’t bode well for financial markets, as stocks fight to recover from this year’s decline.
Raging inflation, rising bond yields and the Federal Reserve’s determination to lift interest rates have put the markets in a funk. That has made fund managers pessimistic on bonds and BofA strategists pessimistic on equities.
Consumer prices soared 8.5% in the 12 months through March, a 40-year high. The 10-year Treasury yield has jumped 117 basis points this year to 2.68%. The Fed began lifting rates in March, with a 25-basis point move. And many economists and investors expect a 50 basis-point hike in May.
‘Fast and Furious Fed’
“The April FMS [fund manager survey] is bearish, as fear of a fast and furious Fed sends global growth optimism to an all-time low and keeps Wall Street stability risks high,” BofA strategists wrote. Fund managers forecast the Fed will lift rates seven times this year.
Stagflation expectations among fund managers climbed to 66% from 62% in March, the biggest increase since 2008. But most fund managers expect inflation to pull back in the next 12 months.
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The April survey wasn’t “as bearish as the war-shocked March survey,” BofA strategists said. But, fund manager “sentiment is poor.”
‘Sell the Rally’
As for BofA’s own view, “we remain in the sell-the-rally camp [for stocks], as the profit-policy set-up means the January/February selloff was an appetizer not the main course of 2022,” the strategists said.
The S&P 500 slid 12% from the beginning of the year through March 8, but has rebounded 7% since then.
When it comes to asset allocation, fund managers are a record 38% net overweight in commodities, 19% overweight in real estate, 6% in stocks and negative 68% in bonds. The most “crowded trade” among fund managers is long oil and commodities.
The biggest long positions for fund managers are in cash, commodities, resource and healthcare stocks. And the biggest shorts are bonds and cyclical stocks, such as industrial and consumer discretionary companies.