Jan/Feb market sell-off was an just an appetizer: BofA Securities survey

The possibility of faster-than-expected rate hikes by the US Federal Reserve (US Fed) has made fund managers cautious on the road ahead for the markets, with those surveyed across the globe by BofA Securities in April expecting 7 hikes by the US central bank (up from 4 hikes earlier). In this backdrop, they suggest selling stocks on a rally in equity markets.

"April fund manager survey (FMS) is bearish as fear of fast & furious Fed sends global growth optimism to all-time low, keeps Wall Street stability risks high; though not as bearish as war-shocked March FMS. We remain in 'sell-the-rally' camp as profit-policy set-up means January / February sell-off was an appetizer not main course of 2022," cautioned Michael Hartnett, chief investment strategist at BofA Securities.

The survey was done between April 1 and 7 and had 329 panelists with $929 billion in assets under management (AUM).

Global growth optimism, according to the survey findings, was at an all-time low, with recession fears surging in the world’s investment community. The quantum of investors expecting the economy to deteriorate is the highest ever at 71 per cent, according to the April survey. Stagflation expectations jumped to the highest since August 2008, while monetary risk increased to a historic high.

Global recession, hawkish central banks, inflation and Russia / Ukraine geopolitical issues were among the top tail risks (in that order) to the markets, BofA Securities said. As a result, a net 35 per cent of FMS investors said they were currently taking lower-than-normal risk levels, down 6 percentage points (ppt) month-on-month (MoM).

A majority of investors (64%) expect the S&P 500 to break below the 4,000 level first before recouping the loss and breaching the 5,000 level (26%). The survey findings show that investors expect a Fed “put” to arrest a stock market sell-off at 3,637 levels for the S&P 500.

That said, the most crowded trade, according to the survey, was going long on oil / commodities, resources and healthcare sectors; while the biggest shorts included bonds and cyclicals such as industrials and discretionary, the BofA Securities note said.

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