When BofA's Michael Hartnett releases his monthly Fund Managers' Survey, the one chart we always head straight to is the one laying out what the "smart money", aka the polled investors who make up the survey, is most worried about, or as they put it: what are the biggest "tail risks."
The chart below shows that as recently as a month ago, what jept everyone at night by a substantial margin, with 45% putting it as their top fear, was a China Recession, followed by an EM debt crisis.
How things have changed in the subsequent month.
As the chart below shows, the biggest investor fear in February had nothing to do with a Chinese recession or an EM Debt crisis, and everything to do with the dreaded "R" word right inside the gold ole' US of A. In fact, four of the top "tail risks" are brand news, and in addition to a US recession include energy debt defaults, quantitative failure and a topic we have been covering since mid-2015, China's relentlessly encroaching capital controls.
To be sure, calling for a US recession as recently as December was heresy, and even now using the 'R' word is normally met with derision along with a line of standard-market-responses as to why that is nonsense (yield curve not inverted, services will save us, ...but why would The Fed have hiked rates). However, as BofAML's latest investor survey finds, not only does a great majority believe global growth is in "late cycle," but the biggest tail-risk is a US recession, outworrying geopolitical risk.
Confirming fears that not only was a Fed hike an error, but that instead the Fed should be planning to cut rates, the percentage of "smart money" thinking the global economy is "late-cycle" rises to highest level since Aug’08 with 19% now believing a recession is likely to occur in the next 12 months (up from 12%).
Which leads us to the next question: is a US recession now "priced in", and what will be the next bad news catalyst to force the next, and completely unexpected, leg lower in the stock market?