When last we checked in on BofAML’s Michael Hartnett, he was “still bearish” following the October rout in U.S. equities.
“It’s (almost) an official global equity bear market [with the] MSCI equal-weighted global index now down 19.6% from the intraday high on January 29th”, he wrote late last month, adding that “asset carnage [has spread] cross-market and has infected US tech leadership.”
Hartnett’s notes are watched pretty closely. He’s got an engaging style and earlier this year, his “Bull & Bear Indicator” flashed a rare “Sell” signal just days before the bottom fell out for equities leading, ultimately, to the February correction. Around the same time, his Global Fund Manager Survey flagged “Short vol.” as the most crowded trade on the planet. That trade blew up in spectacular fashion on February 5.
On Tuesday, Hartnett is out with the latest edition of his Global Fund Manager Survey and it’s chock-full of quotables and eye candy.
Right off the bat, Hartnett notes that fund managers appear to have bought the dip. “FMS cash level drops sharply in Nov to 4.7% from 5.1%,” he writes, describing the following chart:
Despite the October rout, “Long FAANG+BAT” remained the most crowded trade on the planet for the 10th consecutive month, although conviction around that assessment is the lowest since February. That marks a stark contrast from three months ago. “The August reading was the most crowded trade outright since Long USD Dec ’15”, Hartnett reminds you.
Here’s the breakdown on that:
Meanwhile, the percentage of survey respondents saying they’re overweight Tech plunged to just 18%, which is the lowest since February of 2009 or, more to the point, the lowest since before the bull market began.
As noted above, fund managers bought the dip. The MoM increase in positioning shows folks increasing their exposure to U.S. stocks more so than EM equities following the drawdown.
And that’s somewhat amusing, because when asked which asset class will perform the best in 2019, the overwhelming favorite was “non-U.S. equities”:
As far as whether October was “the big one” and/or whether now is the time to load up because we’ve hit “The Big Low” and are thus poised for an epic rebound, Hartnett’s answer is as follows:
We stay bearish…FMS investor positioning does not yet signal The Big Low in asset markets (likely Q2’19 at earliest)…BofAML Bull & Bear Indicator @ 3.1, i.e. no “extreme bear” contrarian buy signal.