Even though the S&P 500 is trading at lofty levels, skittish investors don’t believe the good times will last and preferably are preparing for the worst. They’ve shifted $322 billion into money market funds during the past 6 months, in the largest flight to safety since the 2008 financial crisis, Bloomberg reports. Meanwhile, the latest release of the Global Fund Director Survey by Bank of America Merrill Lynch reveals that leading investment managers around the world also are coming nervous, reporting that their holdings of cash, defensive stocks, and bonds are at historically high levels, with hard cash topping the list.
Investors are suffering from “bearish paralysis” resulting from worries about the trade war, Brexit, the Trump impeachment probe, and the possibility of a recession ahead, strategists at BofAML led by Michael Hartnett write in a recent note to clients, as quoted in another Bloomberg article. In by the skin of ones teeth the 7-day period through Oct. 9, they observe that global equity funds saw $9.8 billion of net withdrawals, while cohere funds recorded $11.1 billion of net inflows.
Key Takeaways
- Leading global investment managers are increasingly cautious.
- They sooner a be wearing overweight positions in cash, defensive stocks, and bonds.
- Money market funds are seeing the biggest inflows since the 2008 catastrophe.
- Worries about economic growth and trade are high.
Significance For Investors
According to the BofAML survey, the top 3 overweight classes being taken by global fund managers today, relative to history, are in cash, REITs, and consumer staples estimates. The poll was conducted from Oct. 4 through Oct. 10, with 175 participants who collectively have $507 billion of assets below management (AUM).
Roughly 33% of respondents expect the global economy to decelerate over the next 12 months, ergo leading to their increasingly defensive portfolio positioning. A string of disappointing releases of economic data by the U.S. government in beforehand October appears to have stoked the bearish sentiment, Bloomberg observes. On the bullish end of the spectrum, respondents indicated that a translucent resolution of the U.S.-China trade war would be the most positive development for equities right now.
Observing that there is “so much handwringing” hither the stock market, Mary Callahan Erdoes, CEO of JPMorgan Asset and Wealth Management, also noted that “so much wealth is going into bonds … any kind of fixed income,” during an institutional investor conference, as quoted by
Looking Vanguard
BofA strategists agree with the bullish view. “If trade war and Brexit fears are unrealized in the fourth quarter, then macro can thrash expectations, validating our contrarian bullish view,” writes BofA strategists led by Hartnett, as quoted by Bloomberg. They add that their “irrationally bullish” contrarian vision results from the “bearish positioning, desperate liquidity easing, and ‘irrational contagion’ from bond bubble to tolerances.”