Risk exposure by fund managers is even lower than it was when Lehman Bros. collapsed, according to the latest survey from BofA Securities out Tuesday.
A net 58% of those polled in the July Fund Manager Survey say they are taking lower-than-normal risk, a record high surpassing that of the Financial Crisis.
Doom and gloom was the overall tone of the survey of 293 panelists with $722B in assets under management, which strategist Michael Hartnett entitled "I'm so Bearish, I'm Bullish."
Fund managers are close to full capitulation, with the survey showing "dire level of investor pessimism," Hartnett wrote.
Those surveyed showed "expectations for global growth & profits all-time lows, cash levels highest since '9/11', equity allocation lowest since Lehman, BofA Bull & Bear Indicator remains 'max bearish' (at) 0; H2’22 fundamentals poor but sentiment says stocks/credit rally in coming weeks."
For those seeing this as a contrarian indicator, the trade would be risk-on in Q3 absent a Lehman-like event and with a lower CPI and a Fed pause by Christmas, he said.
The trades would be to short cash and go long stocks ( NYSEARCA: SPY ) ( QQQ ) ( SPGM ), short the U.S. dollar ( USDOLLAR ) and go long euro ( FXE ), short defensive stocks ( XLV ) ( XLP ) ( XLU ) and go long banks ( KBE ) and the consumer ( XLY ).
Fed pivot
Fund managers polled expect the most likely reason for the Federal Reserve to pause or pivot on its tightening cycle is if inflation drops below 4%.
Weekly jobless claims above 300K is the second-most-likely cause, followed by high-yield bond spreads ( LQD ) ( HYG ) ( JNK ) rising back above 600 basis points. The S&P 500 ( SP500 ) ( SPY ) falling below 3,500 (the Fed put) dropped into fourth place and oil ( USO ) ( CL1:COM ) below $90 per barrel rounded out the top five.
Among the biggest tail risks, high inflation reclaims the top spot, with 33% of respondents citing it. Global recession worries are at 24% and hawkish central banks drops from first to third at 17%.
Long U.S. dollar is considered the most crowded trade at 41%, followed by long oil/commodities and long ESG assets.
See why Stifel is expectating an S&P relief rally .
For further details see:
Fund managers are more bearish than Lehman days; is it time to get bullish?