- A Bank of America survey of 223 fund managers found just 10% expecting a V-shaped recovery from the coronavirus recession, and 75% projecting a slower U- or W-shaped bounce.
- One-quarter of respondents view April’s market rally as ushering in a new bull market, while 68% see it as a bear market rally.
- The most crowded trades in the week ended May 14 were into US tech and growth stocks, according to the bank. The last time so many managers expected value stocks to underperform growth was during the financial crisis.
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After a powerful market rally through April, fund managers are preparing for a slow economic rebound and near-term market chaos, according to Bank of America.
A survey of 223 fund managers over the week ended May 14 found just 10% expecting a V-shaped recovery, while 75% forecast prolonged U- or W-shaped recoveries. One-quarter of respondents view the investing landscape as a new bull market, and 68% see the recent run-up as a bear market rally.
Defensive positioning in cash dropped to 5.7% from 5.9%, but remains well above the 10-year average of 4.7% as several investors wait for risk assets to stabilise further. Bank of America’s Bull & Bear indicator sits at 0, implying “extreme bearish” sentiment among fund managers.
The most crowded trades of the week were US tech and growth stocks. The last time so many managers expected value stocks to underperform growth was in December 2007, according to the survey.
While the second week of May saw managers grow more optimistic toward global growth prospects, investors don’t see the world’s manufacturing industries returning to steady growth until at least November. When the coronavirus threat fades, 68% of respondents expect supply chain transfers to mark the biggest structural shift.
As companies borrow cash to bridge the economic downturn, nearly three-quarters of fund managers said corporations should reduce debt. The Federal Reserve’s move into buying corporate credit lifted the bond market and prompted back-to-back months of massive debt issuance. Some investors are now growing worried about how firms will pay off their skyrocketing debts once the economy recovers.
Oaktree Capital co-chairman Howard Marks raised the issue in a Monday interview on Bloomberg TV, saying currently lofty bond prices are “artificially supported by Fed buying.” Once the central bank unwinds its hefty relief efforts, investors will need to reconsider how much they’re willing to pay for risky corporate bonds, he added.
“Those of us in the markets believe that stocks and bonds are selling at prices they wouldn’t sell at if the Fed were not the dominant force,” Marks said. “So if the Fed were to recede, we would all take over as buyers, but I don’t think at these levels.”
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