Pros are more convinced than ever that monetary policy’s too restrictive.

That was one of the main takeaways from this month’s edition of BofA’s popular fund manager survey, and it raised an obvious question: What typically happens across assets when fund managers are as convinced as they are currently that policy’s unduly onerous?

In the latest installment of his popular weekly “Flow Show” series, the bank’s Michael Hartnett addressed that question. I doubt the answer will surprise anyone, but it’s worth a mention all the same.

Looking back a quarter century, the long bond and IG were the best performers six months on after a two standard deviation jump in the share of fund managers who believe policy’s too restrictive.

As the table shows, the worst performer on average was stocks.

Note that if you exclude the most recent three observations (i.e., June of 2019, March of 2020 and October of 2022), the average return for equities following big jumps in the share of professionals expressing consternation about the level of policy restriction was an abysmal -11.3%.

I’d suggest that’s probably a more accurate read on where equities are headed, at least compared to the signal you get from stocks’ performance following the 2019, 2020 and 2022 observations which, to my mind anyway, are too idiosyncratic to be useful.

So, why the long bond? Well, that should be obvious: When fund managers are unanimous (or nearly so) in judging policy to be overly restrictive, there’s typically something amiss. As Hartnett wrote, “in the past 25 years, surges in ‘restrictive’ were associated with liquidity/deleveraging events,” from the dot-com collapse to Enron/WorldCom to Lehman.

That raises one more question: What’s this cycle’s “deleveraging event”?