“Macro expectations have rolled over.”
That was one takeaway from the August vintage of BofA’s Global Fund Manager survey, out Tuesday.
This month’s edition (which sported the somewhat unfortunate title “TINA Turners”), saw expectations for global growth fall to a net 27%. That was the lowest since April of last year, when the world was still in a state of shock.
The figure (below) is notable, anecdotal though the light blue line might be. The gap between allocations to stocks and growth expectations is yawning as investors… well, as investors yawn at multiplying threats to growth.
Although the overwhelming majority of respondents still expected the macro backdrop to be defined by above-trend growth and inflation, a 5% MoM decline brought the total expecting that conjuncture to 69%, down from 76% in June. Dating back to the financial crisis, previous peaks never reached 40%, underscoring the extent to which the post-GFC period was defined by a “slow-flation” macro environment. By comparison, August’s 69% reading looked positively ebullient, but the decline from June’s 76% marked “peak boom,” according to BofA.
In addition to plunging growth expectations, fund managers’ outlook for earnings deteriorated. “Global profit expectations have fallen drastically,” the bank’s Michael Hartnett said. A net 41% of FMS investors saw profits improving, the least since July of last year. The high was 89%, just five months ago.
Margins, you might recall, hit a record in the second quarter. Little wonder, then, that the August survey saw expectations for margin expansion flip negative on net for the first time in more than a year (figure below, from the survey).
All of this despite respondents’ upgraded view on the prospects for US fiscal stimulus. Survey participants now project US infrastructure spending of $1.7 trillion. One assumes that takes account of Democrats’ budget blueprint, given the size of new spending in the actual infrastructure bill is just $550 billion.
Generally speaking, investors see the Fed unveiling the taper by year-end. More than a quarter see the signal coming at Jackson Hole. A third said it’ll come at the September FOMC.
Although the percentage of investors who said inflation is “transitory” fell from July, at 65%, it still suggested most market participants are buying what the Fed is selling, figuratively speaking.
If they ever stop buying it, don’t worry. Because at that point, the Fed would likely be a buyer of whatever market participants were selling. Literally.
I have to say, I’m still a bit surprised by the market action of the last week.
I get peak growth. Peak margin too. But if we have peak growth, won’t we have peak inflation? i.e. inflation will indeed prove transitory (if not the way we wanted)…
I am aware that stagflation is a thing that can happen. But I’m struggling to see it happening now.
Also – am I the only one lowering the odds of seeing the Fed taper aggressively? I think the macro mess, with sectors doing okay, others not, states reopening, others not, with the fiscal stimulus also rippling through the economy etc. warrant ‘some’ taking the foot off the gas by the Fed. But definitely not slamming, nay, not even tapping, the breaks.
I think your take is as reasonable as anything else. Going into a skid – give it a little gas and steer out of it.
H-Man, sorta like an orderly evacuation that isn’t orderly.
Transitory strikes me as a perfect word for a central banker. When is it transitory, when it is it not. It cannot be really defined. It allows for can kicking on the timeline so that the central banker can have any possible reaction function it desires. It is opaque and thus gives little clarity on the reaction function. Maybe that is good or maybe that just increases uncertainty, although one would be hard pressed to link that observation with asset volatilities.