IBy Michael Hartnett, Jared Woodard and Tommy Ricketts, BofAML Data Analytics Investment Strategy Global

Analysts at Bank of America Merrill Lynch have just dropped their top eight takeaways from their global fund manager survey.

Bearish positioning = rally

Investors bearish, GDP & EPS optimism has crashed, 10-
year high in leverage fear…but investors discounting “secular stagnation” not recession, a steeper yield curve (Exhibit 1), and are adding risk via tech stocks & EM assets.

Macro crash

Global GDP & EPS growth expectations plummet toward 2001 & 2009 lows…but just 14% of investors see “recession” in 2019.

Credit fear

Investor demand for companies to improve balance sheets highest since Sept’09; investors demand for higher capex the lowest since Oct’09.

Safe US$ haven

Long US$ is #1 “crowded trade”, US$ seen as most “overvalued” since 2002; #1 tail risk is still “trade war” but fears are way down from Jul’18 peak.

FMS de-risk ends

The good news was inflation expectations plunged allowing investors to discount a new dovish Fed & a bull steepening of yield curve; no surprise that Jan FMS shows de-risking is over.

Cash high as investors nibble

FMS cash levels up slightly to 4.9%, hedge fund gross exposure cut to 8-year low; Jan FMS shows investors adding to tech & EM assets, while cutting exposure to industrials, Japan & European stocks (to 7-year low).

BofAML FMS Rules & Tools

Still “defensive” but bulk of the predicted bear moves from the BofAML trading rules (i.e. –70bps in Treasury yields, +230bps move in credit spreads) is now behind us.

Jan FMS contrarian theme & trades

“Cyclical leverage” via risk assets, long EM FX, long US industrials & small cap versus short healthcare, and long European stocks.