Fund managers’ perceptions of the economic situation and which assets they should invest in at that time changed dramatically between September and October. During this period, investor sentiment has changed significantly, for two reasons: first, the strong US employment figures released on October 4, which triggered optimism about the country’s economic growth and, secondly, due to the stimulus measures announced by the Chinese authorities during the last week of September. With these two arguments on the table, the managers surveyed by Bank of America during the first week of October completely changed their positioning: fixed income sales this month are the strongest in the entire series historic, and this divestment was used to turn to riskier assets, such as the stock market, which saw the strongest entry since June 2020.
If in September managers relied on the Fed to avoid a slowdown in economic growth and protected themselves from poor economic prospects by investing in all assets that would benefit from a drop in rates, in October the situation changed radically. Bank of America’s latest monthly executive survey reflects a significant shift in respondents’ mood: The 195 participants, who manage $503 billion in total, have moved away, on average, from fixed income. The aggressiveness of the rotation was extraordinary: The flight from bonds was the strongest seen in the survey since records began more than two decades ago.
In turn, money has flowed into the stock market and emerging markets, and there are two clear reasons for this rotation. The first is the wave of stimulus measures presented by the Chinese government between the September and October surveys. The promise of significant economic support from Beijing is what investors wanted to hear to come back to invest in emerging markets, and it is, as they acknowledged in the latest survey, a setback for securities at fixed income, the asset that will lose the most due to decisions. that China announced. On the contrary, the plan announced by the authorities will be very positive for emerging stock markets, but also for raw materials, in the opinion of the managers interviewed.
The second reason investors have moved into the stock market and away from fixed income is the expectation of a faster recovery in the United States. On October 4, the employment data was released, which surprised analysts very positively and since then many experts are recalibrating their economic forecasts for the United States. Since then, bond sales have been very aggressive and The latest survey confirms that the aversion to this type of assets is directly linked to employment data.
One thing to keep in mind is that with better-than-expected jobs data, the Federal Reserve will have a harder time cutting rates at a rapid pace, which is negative for bond prices. Hence the massive flight from fixed income that has occurred in managers’ portfolios in recent weeks.
The IPO was the strongest recorded in a single month since June 2020in the midst of the Covid-19 pandemic. If in September a net 11% of managers admitted to overweighting stocks (the percentage of managers who declare themselves overweight, minus those who admit to being underweight), today this percentage rises to 31%.
The development in the fixed income sector was similar, but in the opposite direction: if in September the net overweighting of fixed income securities was 11 points, we now observe an underweighting of 15 points, a positioning opposed to the one that existed only a month ago. In the bonds they now have in their portfolio, managers highlight the attractiveness of corporate bonds compared to sovereign bonds.
The possibility of a recession fades into oblivion
The entry into risk assets which took place at the beginning of October is a consequence of the better economic outlook. The list of the main dangers threatening the market demonstrates this: in September, the recession in the United States was the main danger perceived by managers, by far compared to the rest, and this changed radically this month, with the recession falling to third place in the main dangers, behind geopolitical conflicts and the risk of rebound inflation, in first and second place respectively.
The rise in leaders’ optimism about economic growth has been very rapid. Specifically, this is the fifth fastest rate in a single month since 1994, although, on average, managers still expect global economic growth to be slower year-over-year than expected. ‘is currently.
Yes indeed, recession is still not on the agendaIn the opinion of those surveyed, 76% of them expect a “soft landing” for the global economy, compared to 14% who expect there to be no landing at all, and 8% are unaware that there will be a “hard” “soft landing” over the next 12 months.
