QQQ - Fund managers finally embrace U.S. stocks

2023-09-12 12:59:44 ET

Money managers have abandoned their aversion to U.S. stocks, shifting to overweight and coming closer in line with retail allocations, according to the latest BofA survey.

BofA's September Global Fund Manager Survey showed allocation to U.S. equities ( NYSEARCA: SPY ) ( IVV ) ( VOO ) ( QQQ ) ( IWM ) ( MDY ) surged 29 percentage points month-over-month, from a net 22% underweight to 7% overweight. Cash moved out of emerging markets equities, with the allocation sinking to 9% OW from 34%.

In sectors, cash moved to industrials ( XLI ), real estate investment trusts ( XLRE ), healthcare ( XLV ), and utilities ( XLU ), and away from telecommunications ( XLC ), tech ( XLK ), energy ( XLE ) and banks ( XLF ) ( KBE ) among others.

Cash allocations grew from 4.8% to 4.9% in September, but stayed well below maximum bear levels of 6.3% seen in October 2022.

Economic growth expectations remain pessimistic with 53% of survey respondents saying a weaker economy is foreseen in the next 12 months. But only 27% of respondents believe there will not be a recession in the next 18 months, compared with 21% expecting a hard landing.

The consensus is that high fed funds rates are driving this pessimistic view.

But 60% say the Fed is done with tightening. Most money managers expect the first Fed rate cut to start around April through December of next year.

“Big conviction among FMS investors that the Fed will cut rates,” strategist Michael Hartnett wrote, with 69% expecting lower short-term rates, the most since December 2008.

“Yet a net 69% expect lower global inflation, down from 81% last month and ‘sticky’ inflation keeping central banks hawkish remains the number one ‘tail risk.’”

The biggest tail risks in the September Fund Manager Survey are high inflation keeping banks hawkish (40% of FMS panelists); geopolitics worsening (14%); a systemic credit event, in the government or corporate world (13%); bank credit crunch and global recession (13%); and the AI or tech bubble (10%).

More on market strategy:

• Money managers boost risk, dump REITs to Lehman levels
• Why is the Fed still tilting at fading inflation?

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