Judging by all the bearish commentary unleashed in recent weeks, one would think that the S&P has lost half of its gains since the artificial central-bank driven levitation was unleashed in 2009. Instead it is just over 10% below its all time highs. Still, for many the lack of the low-volume, low-vol levitation they have grown to love so much over the past 7 years, is making them nervous. So nervous, in fact, that they have liquidating so many of their marginal holdings that according to the latest Bank of America Fund Managers Survey, the cash held by investors is now the highest it has been since November 2001.
Perhaps just as interesting, is that allocation to equities falls sharply to net 5% OW from net 21% OW last month. Current allocation is exactly 1.0 stdev below its long-term average, and is back at levels last seen in 2012.
Here is BofA Michael Hartnett's take on this finding:
Top 10 FMS takeaways
- Investors long cash: FMS cash @ 5.6% = highest since Nov’01 = unambiguous “buy” signal
- Investors want capital preservation: Feb rotation to cash, utilities, bonds & telcos; out of banks & stocks
- Global growth & profit expectations both negative for 1st time since Jul’12; weakest China growth expectations since Dec’08
- Fed 2016 rate hike expectations: no hike 23%; one hike 33%; two hikes 34%
- Baby bond bulls: 20% think 10y yields lower next 12 months…up from 4% last July
- Investors remain long stocks: equity OW fell from net 21% to 5%
- Paralysis not panic: limited investor capitulation in US$/EU/JP/Tech long positions
- Big stubborn short positions in Energy, EM, Materials, Commod, Industrials continue
- Most "crowded trades": long US$ 30%, short oil 25%, short EM 16%, long FANG 12%
- Capitulation in momentum as outperforming style factor; preference for quality, large cap, yield
And the implications:
- FMS says SPX 1800 "floor” holds/tactical counter-trend rally in risk e.g. SPX back to 1950 “ceiling”; but FMS does not say great cyclical “entry point” back into risk assets (in 2002, 2009, 2011 investors went UW stocks first)
- FMS says investors have "reset" expectations for macro & markets lower and see default/recession as risk rather than reality
- FMS says another bout of risk-off more -ve for US$/EU/JP/Tech than Energy/EM/Materials/Commodities/Industrials...nb US$ "most overvalued" since Nov’06...right now investors are much more worried about what they own rather than what they don't own
It is ironic how when central bankers take away the training wheels, nobody has any clue how to trade this "market."