The Mood On Wall Street Has Never Been More Apocalyptic
There has been a distinct pattern to 2022 – every month, when look at the latest BofA Fund Manager Survey, we find that the mood on Wall Street has never been catastrophic, dire, apocalyptic, etc.. and 30 days later we find that said mood has turned even worse. This month’s Fund Manager Survey was no difference, and a quick look at the responses to Mike Hartnett’s questions by the 300 panelists who manage $834BN in AUM suggests that one should not walk next to tall building on Wall Street, midtown or the Hudson yards. .
As FMS survey organizer, Michael Hartnett writes, the US stock market officially entered a bear market on Monday (its 20th of the past 140 years) as the June BofA Fund Manager Survey (FMS) signals deeper investor misery: as we noted last Friday, the BofA Bull & Bear Indicator is now down to just 0.2 (it can’t drop below 0.0)…
… and although Wall Street sentiment is dire…
… a “big low” in stocks is unlikely before a big high in yields & inflation, and the latter requires uber-hawkish Fed hikes in June & July (which we will get).
On Macro, extending from the record creeping pessimism of last month, Hartnett observes an all time low in global growth optimism (net -73%)…
… stagflation fears have soared to the highest since June’08 (maybe the FMS respondents should have read our warnings from last year about what is coming)…
… the profit outlook is the worse since Lehman…
… even as a near record number of Wall Street professionals expect inflation to fall (compare to March 2020 when everyone was expecting higher prices)…
… means CIOs are telling CEOs to play safe as 44% want stronger balance sheets vs 30% desire for capex & 18% for buybacks (but of course, everyone really just wants buybacks to cash out asap and retire).
On Policy: a net 79% expect higher short rates…
… which is surprising compared with prior market lows when net 53% expected lower rates!
According to Hartnett, one way to determine the market lows is that everyone will expect the Fed to cut rates, and that’s true – in fact, we expect that to happen some time in late August/September when the recession will be plain for all to see.
Recession announcement aside (as those are notoriously late), what else would make the Fed pause/pivot? The answer: PCE inflation <4% say 48%>300k say 20%, SPX <3500 say 14%>
On Cash, Crowds & AA: FMS cash levels fell from 6.1% to 5.6% (the survey closed day before May CPI shattered hopes of Fed pause):
Most crowded FMS trades are: #1 long oil/commodities (38%) , #2 long US$ (19%), followed by #3 short Treasuries (13%), short China (9%) and so on: of note, May’21 most crowded trade was long Bitcoin.
Something else to note here: when it comes to factual, reality-based assessments, FMS is complete garbage, because as Bank of America itself admitted in the last week of May, “Energy’s weight is now ~5%, the sector is still 30% underweight, leading the bank to conclude that “The pain trade in Energy is up.” We agree, and no, long oil/commodities is not the most crowded trade by a long shot – tech was and remains to this day. It’s just that nobody wants to admit it… or unwind it.
“Energy’s weight is now ~5%, the sector is still 30% underweight. The pain trade in Energy is up.” – BofA https://t.co/24A9W7arEk
— zerohedge (@zerohedge) May 27, 2022
There is one place where Wall Street is correct though: most expect oil to continue to outperform, and it will.
Bigger picture FMS investors are long cash, US$, commodities, healthcare, resources, high quality, value>growth… investors are short bonds, EU & EM stocks, tech & consumer.
Contrarian trades: if Fed goes 50bps in June (= behind-the-curve) FMS says position deeper “risk-off” via short oil & resources (also big tech); if Fed goes 100bps (= aheadof-curve) position “risk-on” via short US$, long EM & low quality growth stocks
Tue, 06/14/2022 – 14:45