CMDY - Fund managers off the inflation mat but still reeling and expecting recession - BofA

Money managers are no longer "apocalyptically" bearish, but still very negative, according to the latest BofA Securities survey out Tuesday.

Hope is rising that inflation and rate shocks are over, strategist Michael Hartnett wrote in the August Fund Manager Survey. Of the 284 panelists with $836B in assets under management, 88% see global CPI lower in 12 months, the highest levels since the Financial Crisis. And expectations for higher short-term rates are seeing an inflection point.

But the "net % of investors that think the global economy will experience recession in the next 12 months continued to rise to 58% (from 47%), the highest since May’20," Hartnett said. "As recession concerns persist ... investors still want companies to strengthen balance sheets over increasing capital spending and buybacks."

Hartnett said his team remains "patient bears," fading the S&P 500 ( SP500 ) ( NYSEARCA: SPY ) above 4,328 with rates-up and profits-down as their base case.

Fed pivot

Inflation remains the key to a Fed pivot, with a drop in PCE inflation below 4% still the most likely reason for a dovish tilt, according to fund managers. That's followed by jobless claims below 300K, the S&P below 3,500 and high yield bond spreads ( HYG ) ( JNK ) ( LQD ) rising above 600 basis points.

Among the most crowded trades, long U.S. dollar ( USDOLLAR ) is till on top, with long oil/commodities ( USO ) ( CL1:COM ) ( GSG ) ( DBC ) ( CMDY ) remaining at No. 2.

FMS positioning is "long stagflation" (commodities, cash and defensives) and "short Goldilocks" (EM/EU stocks and consumers). Long cash, long FAANG, short U.S. Treasuries ( TBT ) ( TLT ) ( SHY ) and short EM ( EEM ) ( VWO ) follow.

The biggest tail risk is still stick inflation, with global recession and hawkish central banks second and third.

See why this strategist thinks it's still to early to move into risk .

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