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Macro sentiment remains very bearish with 73% of investors expecting the global economy to get weaker over the next 12 months, according to Bank of America’s November survey of fund managers. Similarly, 77% of investors expect profits to get worse over the next 12 months, a slightly better reading relative to last month’s 77%.
Recession remains the consensus view with 77% of respondents saying recession is likely, the highest percentage since COVID 2020, while as much as 92% said stagflation is coming.
As a result, CIOs are pushing their CEOs to improve balance sheets (55%) and focus less on capital spending (21%) and buybacks (17%).
“We say ‘rent the pivot’, fade SPX 41k,” BofA’s Chief Investment Strategist said.
As far as the biggest tail risks are concerned, investors named inflation (32%) as the top risk, followed by geopolitics (18%), central banks (18%), and deep global recession (18%).
Investors also expect the PCE inflation to drop below 4%, the key reason why the Fed will likely pivot. The Fed funds rate is expected to peak around 5% in the second half of the next year.
“2/3 investors expected rate cuts at prior ‘Big Lows’ but in Nov FMS 1/3 predict lower short rates, i.e. not there yet,” the strategist added.
Long USD remains the most crowded trade for the 5th straight month while November also saw a huge rotation into industrials and banks from utilities and tech. Allocation to tech is at the lowest since 2006, signaling that asset allocation is still very defensive.
Finally, investors project the S&P 500 returns 6.1% per year, implying a price of over 5300 in 2027.
