Fund managers made their biggest cuts in U.S. equity allocations ever in March and bumped their cash allocations by the most in five years, according to Bank of America’s (BAC+0.68%) monthly survey of the industry.
The speed of this month’s “bull crash” — a rapid shift from an upward surge in stocks into a correction — has in the past 30 years coincided with end of stock corrections, the bank’s Data Analytics team wrote Tuesday in a note to clients about the survey. That said, positioning isn’t close to extremely bearish, and nobody is long recession and bonds, they said.
Stocks dropped again on Tuesday, despite better-than-expected economic numbers, with the S&P 500 index falling 1.2% as of 11:33 a.m. local time, the tech-heavy Nasdaq Composite index sliding 1.7%, and the Dow Jones Industrial Average shedding 348 points, or 0.8%.
And while the survey shows the second biggest drop in global growth expectations ever — minus 44% now expect faster global growth — 64% of respondents still expect a soft landing with 55% giving a trade war as their No. 1 tail risk. About 68% say the Federal Reserve will cut interest rates two to three times.
In terms of allocations, cash has jumped to 4.1% from 3.5%, global equities has slumped to +6% from +35%, driven by U.S. and tech — to which their exposure is the lowest in two years. The allocation to euro-zone shares is the highest in almost four years, and banks are now the world’s favorite industry, according to the survey.
The contrarian trade for bulls who expect trade war and stagflation concerns to unwind is going long equities and short cash, with long stock positions on tech and short on staples. For bears who expect U.S. recession risks to increase, the trade is to go long on bonds and short on banks and European assets.
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