The December installment of BofA’s global fund manager survey is out, and it probably won’t surprise anyone to learn that it “confirms the bulls are back”, to quote the bank’s Michael Hartnett.
Last month’s survey found Hartnett describing the mood as almost ebullient amid the pro-cyclical rotation that was on everyone’s lips at the time. “Global recession concerns vanish and ‘Fear of Missing Out’ prompts [a] wave of optimism and jump in exposure to equities and cyclicals”, he wrote.
This month, he notes that cash levels held at the lowest since March of 2013, while the bank’s famous “Bull & Bear” indicator is up to 5.6, the most bullish since April of 2018.
Meanwhile, recession expectations continue to evaporate. A net 29% of survey respondents expect the global economy to improve over the next year, marking what Hartnett describes as a “big reversal” from June’s “most bearish since the crisis” survey.
The two-month change in global growth expectations (66ppt) is a record and the 33ppt decline in recession fear over the same two-month window marks “a dramatic turnaround”, Hartnett notes.
Meanwhile, survey respondents now see profits rising over the next year for the first time since August of 2018, when bottom line growth was in the process of peaking in the US and the trade war was heating up in earnest.
The following visual shows the biggest two-month jump in profit expectations since May of 2009. As the chart header suggests, that entails a bounce in global PMIs to roughly 55 between now and the second half of 2020.
One caveat is that when asked where ISM would peak next year assuming it’s troughed, the consensus is somewhere between 53 and 54 – that is well off cycle highs.
Other highlights from the survey include inflation expectations rising to 13-month highs, “Long US Tech and Growth” retaining the top slot on the “Most Crowded” trade list (with “Short Vol. climbing the ranks, rising 9ppt), and, notably, respondents suggesting that yields can rise another 84bps to 2.71% “before causing losses and volatility in risk assets”.
That latter point is important. Remember, part of the narrative going into the new year is that as long as yield rise is led by breakevens and thereby seen as a reflection of expectations for better growth outcomes, equities can easily digest even a sharp jump.
The December survey also found respondents suggesting that the S&P will peak at 3322.
All of this comes on the heels of Hartnett’s latest “melt-up” call (from last Thursday), which, for those who missed it, we’ll re-up below without further comment, other than to give Michael a tip of the hat, because since he sounded the contrarian “Buy” alarm in late August, US equities are up more than 11%…
Front-loaded New Year: market primed for Q1’2020 risk asset melt-up; Fed & ECB still adding liquidity, Conservative Party majority (Brexit resolution) & reports of phase one US-China trade deal to resolve main two global macro tail risks & remove lingering US$ & GT10 risk premiums…we continue to expect returns to be front-loaded in 2020 (targets SPX 3333 by March 3rd, GT10 2.2% by Feb 2nd).