Did you buy the (re)dip?
Wall Street struggled on Tuesday to extend a two-session rally off last week’s correction-territory lows, suggesting Morgan Stanley’s Mike Wilson was correct to suggest that, at least for now, bounces are tradeable but they aren’t sustainable.
That said, it’s worth noting — mostly because I promised to note it — that BofA’s so-called “cash rule” is no longer flashing a contrarian “sell” signal.
Recall that self-reported fund manager cash levels ticked a 15-year low at just 3.5% in last month’s installment of BofA’s closely-watched PM poll. I called that a “screaming” sell signal on February 18. The correction started the very next day.
Fast forward to March and the new edition of the poll — which found a broad measure of risk sentiment collapsing amid a surge in pessimism — and cash levels jumped sharply, as funds fled to safety while ditching US stocks en masse.
As the figure shows, cash levels in the survey jumped to 4.1% this month, and while it’s hard to make out in the chart, that’s a big leap. In fact, the 62bps increase was the biggest in more than three years.
And just like that, the “sell signal” from that particular indicator is over.
So… what? Buy stocks? Maybe. But maybe not. After all, there’s a lot to worry about. Like the trade war triggering a recession. The figure below shows the top tail risks in the poll.
In this month’s FMS, a tariff-induced downturn captured 55% of the tail risk vote, which BofA’s Michael Hartnett noted makes “recessionary trade war the highest tail risk conviction since ‘COVID resurgence’ in April of 2020.”
Note also that “DOGE sparks US recession” was a close third on the tail risk list, trailing “Inflation causes Fed to hike” by just a few vote share points.
Bounceback this week or next, maybe. The tariffs coming April 2 and 1Q earnings/revision season starting soon thereafter make this a pretty short window for bulls. S&P 500 is struggling to break above 200D. On next downleg, 5000 looks a reasonable target. Still wouldn’t quite be a bear market.
Americans have been falling for the crap that the Lord of the Tiny Hands has been selling for ten or twelve years now. All the the while when he says something stupid or outrageous folks say, nahh, that really happen. Not only can it but it already has. The Supreme Court was taken over in the first term, so we lost one third of our government. Black Mitch kept Biden’s only court nominee out of the court where he could have protected our system of government. The second third was lost when Trump just ignored the law and Congress and began to rule purely by edict. So now there is only one ruler left and all his toadies are saying that’s ok our system is old, time for a new one where we find all the melon heads in the country and make them Earls and Viceroys and such. Musk is not allowed to actually govern but they found some woman to serve as a proxy to keep the courts nullified. In 2020, during the election Trump said there is no law that applies to me. I can go into the middle of Fifth Avenue and shoot someone and nothing will happen to me. Time to prove him wrong, doncha think?
Meanwhile, I’m keeping my cash for a while until we know more about how this is all going to play out. We do seem to still have a military that he insults ever chance he gets. Time to have a junta?