By Senad Karaahmetovic
Despite poor fundamentals, Bank of America’s Chief Investment Strategist expects to see a rally in stocks in the coming weeks.
Results from the BofA’s Fund Manager Survey (FMS) for July show a “dire level of investor pessimism,” Michael Hartnett noted. Global growth expectations are at an all-time low while recession anticipation is at the highest since May 2020.
The overall mood amongst investors is still “stagflationary”, according to Hartnett, as companies look to prioritize strong balance sheets and less capex and buybacks.
“Investors expect Fed to hike ~150bp more; PCE inflation <4% most likely catalyst for Fed pivot; bond yield expectations at 3-year lows as investors anticipate “bull flattening” yield curve; FMS cash levels surge to 6.1% from 5.6% (highest since Oct’01) as investors take risk exposure below Lehman levels,” Hartnett added in a research note.
BofA Bull & Bear Indicator remains at 0, signaling maximum bearishness. Positioning is also extreme with investors long U.S. dollar and oil/commodities while allocations to stocks are the lowest since October 2008.
In case the Fed pauses rate hiking by Christmas and CPI cools down, Hartnett sees room for contrarian trades, such as short cash/long stocks.