In the latest monthly Fund Managers Survey conducted by Bank of America, virtually none of the biggest "tail risks" noted by Wall Street's smart money (the 175 respondents to the survey collectively run a total of $543 billion) in February was touched upon in January, suggesting Wall Street has a whole new set of things that keep it up at night.
As the following chart shows, when asked what the biggest ‘tail risks’ are this month, 36% responded European elections raising disintegration risk; 32% said Trade war; while only 13% said "Crash in global bond markets."
On the other hand, another notable, recurding question: "what do you think is the most crowded trade", lead to similar responses as those seen last month: a vast majority 41% said being long the US Dollar, 14% said shorting government bonds (a modest increase from the prior month), and only 13% said being long US/EU corporate bonds.
But the most interesting question was one we had not noticed before in the BofA survey, namely "What will be the most likely catalyst to cause an end to the 8-year equity bull market?"
The responses: "protectionism" = 34%, "higher rates" = 28%, "financial event" = 18%, "weaker EPS" = 15%.
A follow up question asked "What economic outcome do you expect new "populist policies" to induce?" The answers suggested a curious split - on one hand Wall Street has voted that Trump's policies would be beneficial for stocks as seen by yet another all time high in the S&P; on the other half, more than half of respondents said that should Trump truly unleash his "populist policies", the outcome would be either stagflation, recession, or stagnation. Go figure.
In this context, another interesting question - and answers - when BofA asked "Which of the following investments would perform best if the world shifted decisively toward protectionism?" the answer was clear.
Finally, one tangential if very important question in this age of rising rates: "What level of sustained 10-year Treasury yields would cause an equity bear market?" The answer is that - for now at least - yields are too low to hurt stocks, with 64% saying that 10-year Treasury yields of 3.5%-4% required for equity bear market.
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As an added bonus, BofA's Michael Hartnett says anyone who is brave enough to be a contrarian to the prevailing thought on Wall Street, i.e., a contrarian macro bear (expecting weaker growth) would sell banks, US dollar, Japan, and buy bonds, utilities, staples. Meanwhile the contrarian macro bull (expecting higher inflation) would reduce cash, sell REITs, tech, and buy sterling, EM, industrials.