By Senad Karaahmetovic
Investors are least pessimistic since February last year but still not optimistic enough to say positioning a sell catalyst, Bank of America’s analysts said today.
They were discussing the result of BofA’s February Global Fund Manager Survey (FMS), which was conducted between February 2nd and 9th. The survey was based on 299 panelists with $847 billion in AUM.
Investor allocation to equities has risen to a net 31% Underweight since the low of net 52% UW in September. Net 25% are Overweight Healthcare (down 8% MoM) and 16% Underweight Utilities (down 11% MoM) while allocations to cyclicals are increasing.
Macro sentiment remains bearish, but the least bearish since the war in Ukraine. Recession odds have dipped to 24% this month, from 27% in January, which is the lowest level since June 2022.
“Net 35% of FMS investors expect a weaker economy in next 12 months, a 15ppt improvement MoM, and lowest since Feb'22,” the analysts wrote in a client note.
58% of survey respondents expect profits to deteriorate (vs. 65% in January), the least pessimistic since last March. 83% expect below-trend growth and above-trend inflation through January 2024.
“Note that the probability of 'stagflation' scenario in next 12m has hovered above 75% since May'22…since 2008, no other macro outlook has been priced with such elevated probability; 'secular stagnation' probability now 8%, down from 11% last month…had jumped from 4% in Oct'22 to 11% in Jan'23,” BofA analysts added.
Moreover, nearly every second (47%) FMS investor expects lower short-term rates next 12 months, which is the highest percentage since March 2020. Investor consensus for the Fed hikes is two more increases by 25 basis points.