Gong! Everyone is long commodities. Meaning that they will be the last thing to break as the Fed flushes the system of excess but break they will. BofA Global Fundie Survey tells the tale.
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Bottomline: TheUS stock market officially enters a bear market*as the June BofAFund Manager Survey (FMS) signals deeper investor misery;
BofA Bull & Bear Indicator is down to 0.2;Wall St sentiment is dire but no big low in stocks before big high in yields & inflation, and the latter requires uber-hawkish Fed hikes in June & July.
On Macro: all time low in global growth optimism (net-73%), stagflation fear highest since June’08, profit outlook worse since Sept’08 (Lehman);
CIOs telling CEOs to playsafe (44% want stronger balance sheets vs 30% desire for capex & 18% for buybacks).
On Policy: net 79% expect higher short rates…compared with prior market lows when net 53% (average) expected lower rates (Chart1);
what makes Fed pause/pivot? PCE inflation <4% say 48%, jobless claims >300k say 20%, SPX <3500 say 14%.
On Cash, Crowds & AA: FMS cash levels fell from 6.1% to 5.6% (survey closed day before May CPI shattered hopes of Fed pause);
most crowded FMS trades are #1 longoil/commodities, #2 long US$ (note May’21 most crowded trade was long Bitcoin);
bigger picture FMS investors are long cash, US$, commodities, healthcare, resources, high quality, value>growth; investors short bonds, EU & EM stocks, tech & consumer.
Contrarian trades: if Fed goes 50bps in June (= behind-the-curve) FMS says position deeper “risk-off” via short oil & resources (also big tech); if Fed goes 100bps (= ahead-of-curve) position“risk-on” via short US$, long EM & low quality growth stocks
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
