Fund Manager Misery with Capitulation and Sentiment at Lehman Collapse Levels – BofA Survey

BofA Global Fund Manager Survey revealed the lowest equity allocation since Lehman Bros and the highest cash levels since 2001 as fund managers slashed their exposure to risk assets. These levels have not seen even during the global financial crisis. The markets in response on Tuesday in a sign of full capitulation amid a “dire” economic outlook rallied sharply by early afternoon the Dow at 31765.50 was +691.01 or +2.22%, Nasdaq 11695.85 +335.83 +2.96% and the SP 500 3931.38 +100.46 +2.62% and the 10-yr Note -24/32 at 3.018.

BofA strategists led by Michael Hartnett wrote in the attached note, the investor allocation to stocks plunged to levels last seen in October 2008 while exposure to cash surged to the highest since 2001, according to the survey. A net 58% of fund managers said they’re taking lower than normal risks, a record that surpassed the survey’s global financial crisis levels.

Bank of America’s survey, which included 259 participants with $722 billion under management in the week through July 15, said high inflation is now seen as the biggest tail risk, followed by a global recession, hawkish central banks and systemic credit events. At the same time, the most investors since the global financial crisis are betting that inflation will be lower in the next year, which means lower interest rates, according to the poll. 

While street optimism has grown that US inflation could be nearing a peak, but sentiment remains subdued with risks around a potential recession remaining high with all the negativities. The energy crisis in Europe and war in the Ukraine adds to the uncertainty.

“Second half 2022 fundamentals are poor but sentiment says stocks/credit rally in coming weeks,” strategists wrote. 

Credit Suisse strategists said in a note said investors are expecting a Federal Reserve pivot in the fourth quarter and are beginning to move into growth stocks and looking into cheap cyclicals like autos. 

Bloomberg highlighted other survey highlights include:

  • Investors are very long cash and defensives like staples, utilities, health care, and very short stocks, particularly EU, banks, tech and consumer, while they have also cut exposure to resources
  • Most crowded trades are long US dollar, long oil and commodities, long ESG assets, long cash and short US Treasuries
  • Among equity regions, investors are most bearish on Eurozone and Japan
  • Investors are most bullish cash and most bearish on equities
  • In past 4 weeks, investors increased their exposure to bonds, staples, utilities, healthcare, while slashing exposure to equities, Eurozone, materials and banks

Investor allocation to stocks plunged to levels last seen in October 2008 while exposure to cash surged to the highest since 2001, according to the survey.

Source: BoA Survey

From The TradersCommunity Research Desk