The Rotating Top
United Arab Emirates, September 16, 2020:
• Rotating Top: investors 'rotating' not 'chasing' stocks following epic 51% rally from March lows
• The vaccine's the thing: 41% say C-19 vaccine most likely trigger for higher bond yields, investors say Q1'21 likely timing
• FMS contrarian trades: UK, energy, banks longs (on 10Y >1%); US tech, healthcare, discretionary shorts (on vaccine)
BofA September Global Fund Manager Survey
Bottom line: FMS shows investors 'rotating' not 'chasing' stocks following epic 51% rally from March lows; BofA Bull & Bear Indicator unchanged at 3.9… positioning implies SPX 3300-3600 range holds, and cyclical rotation still in early phase; Sept Zeitgeist…
• 'It's a bull market': 58% of investors say new bull market has begun (25% in May).
• 'No longer a recession': 1st time since Feb more investors (49%) say macro in early-cycle phase than recession (37%); net 84% say global growth up next 12 months.
• 'It's not escape velocity': 61% predict U- or W-shaped recovery vs 20% say V-shaped; 51% still prefer balance sheet discipline vs 37% want increased capex (was 13% in Apr); shows FMS investor doubt on sustainability of upturn.
• 'Dry powder': FMS cash levels rose from 4.6% to 4.8% (greed <4%, fear >5%).
• 'We're paranoid tech': long US tech most 'crowded trade' of all-time (80%); 'tech bubble' now #2 FMS tail risk after COVID-19 'second wave'; 1-month return reversal occurs after 'peak crowded trade' in 14/22 months in past decade (Table 1).
• 'Let's cyclically rotate': FMS rotation continues on macro; tech, healthcare, large cap longs trimmed, industrials @ highest overweight since Jan'18, flows to small cap & value up; but no regional rotation (US>EU/UK/EM) and banks/energy shunned.
• 'The vaccine's the thing': 41% say credible COVID-19 vaccine most likely trigger for higher bond yields, followed by inflation (37%); investors say vaccine announcement most likely Q1'21; only 11% think 10Y UST yields will break out from 50-100bps range by year-end; and note 4 in 5 investors say flip in US Senate will be risk-off.
• 'Contrarian trades': relative to history (Z-score) and Sept FMS flows UK, energy, banks most contrarian longs (trigger is 10Y UST yield>1%); US tech, healthcare, discretionary most contrarian shorts (trigger is vaccine) - Chart 1.