Wall Street Unexpectedly Turns Extremely Bearish On Global Growth

Last week , in the aftermath of the latest disappointing Chinese data, we noted that after closely tracking the recent surge in the S&P, the popular Citi Macro Surprise index slumped as numerous global growth indicators suddenly missed expectations and/or declined outright.

It appears that this troubling development was not lost on Wall Street, because according to the respondents of the latest monthly Global Fund Manager Survey conducted by Bank of America in which 176 participants with $514bn AUM answer various macro and micro questions, expectations for faster global growth tumbled by half, or a whopping 19%, to net 18% in March, the lowest level since the UK voted to leave the EU in June 2016, and suggesting that the global macro impulse has now faded.

And while the global economy may not be seen as in recession just yet, it's almost there: no less than 74% of investors surveyed now believe the global economy is in the late cycle: this was the highest percentage in survey history, while at the same time respondents voiced the highest inflation expectations in over 13 years. As a reminder, global growth turns south coupled with inflation you get "stagflation", and when as a result the "late cycle" economy end, recession begins.

Looking at this unexpected spike in pessimism, BofA's Chief Investment Strategist, Michael Hartnett, who conducts the monthly survey writes that this month's FMS "shows cracks in the bull case emerging, specifically concerns over

  • a) trade…FMS tail risk #1 now trade war,
  • b) stagflation…lowest global growth expectations since Jul'16, highest inflation expectations since June'04, and
  • c) leverage…investor desire for cash flow to improve corporate balance sheets highest since Jun'10.

More from Hartnett, who warns that “cracks in the bull case are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage."

So has this perceived slowdown in the global economy, which has yet to manifest itself in a change to rate hike expectations by either the market or the Fed, are the same fund manager respondents taking appropriate action and derisking?

Well, recall that this particular survey is the one we dub "endlessly paradoxical", and this month was no different, because even as the "smart money" sees both a stagflation and recession as just around the corner, they put in even more cash into the market. Indeed, as Hartnett notes, "ominously investors yet to act on fears, as rates and earnings are keeping the bulls bullish: FMS shows investors stubbornly long global stocks, banks, tech, still short bonds, defensives, and cash levels fell from 4.7% to 4.6%."

In other words, everyone is nervous and... not only not doing anything about it, but adding even more risk exposure!

To be sure this glaring disconnect between what Wall Street thinks and how it invests is something we have repeatedly commented, and is most likely just an indication of how broken the market has become thanks to constant central bank intervention.

And while Wall Street may be suddenly fearing a sharp economic slowdown, what do they think in terms of actual risks catalysts? The answer: the threat of a trade war (30%) returns to the top of list of tail risks most commonly cited by investors for the first time since January 2017, followed by inflation (23%) and a slowdown in global growth (16%).

This is the first time Trade War has emerged as the top risk according to Wall Street, and follows last month's top risk of inflation and bond crash.

Another notable finding, and the reason why yesterday's tech dump spooked so many: according to Wall Street, “Long FAANG+BAT” remains the most crowded trade (38%) - which we confirmed recently when looking at hegde fund 13F filings; "Short USD” is now the second most crowded trade (17%), while “Short Volatility” slips to sixth from first in January.

This is the second consecutive month in which "Long FAANG+BAT” is seen as the most crowded trade, and explains why should a selloff begin in earnest, it could get very messy, as investors will scramble to frontrun each other in getting out of the biggest "hedge fund hotel" position in recent history.

Finally, for all those asking what Wall Street believes will be the "magic level" in the 10Y which sends stock tumbling, the answer - according to the survey - is 3.60%

And here are the other key findings from the latest survey:

  • 58% of investors surveyed believe global EPS will grow more than 10% in the next 12 months
  • The net percentage of investors who would like to see companies improve their balance sheets is at the highest level in over 8 years
  • Fund managers are stubbornly long global stocks, banks, and tech, while remaining short bonds and defensives
  • Investors are reducing risk by increasing allocations to defensives such as staples, REITS, the U.S. and banks; they are rotating out of cyclicals and value plays including energy, discretionary, materials and the UK
  • Allocation to banks climbed to the second highest level on record, with net 36% of investors surveyed indicating they are overweight the sector
  • Pessimism toward UK equities hits an all-time high as net 42% of investors surveyed say they are underweight the region
  • On Japan, global investors are still overweight Japan equities (net 26%) and, for the first time since 2009, the majority of fund managers do not expect the Japanese yen to depreciate over the next 12 months

Comments

two hoots Lordflin Tue, 03/20/2018 - 10:32 Permalink

Rhetorical:  Carrying capacity, now that interest me.  If we just eat grass and bushes, eliminate plastics and shit in the woods we may hit the top of the carrying capacity, ah what a life.  If we all have Jetstreams and yachts, eat caviar/salmon/prime rib and tenderloin daily with fine wine then the carrying capacity would be much smaller.  So, what lifestyle is this so called carrying capacity based upon?  It's kinda like balanced budgets, at what tax level?  Usually when I ask that people move away from me, which is fairly common and okay.

In reply to by Lordflin

LawsofPhysics two hoots Tue, 03/20/2018 - 10:58 Permalink

Doesn't really matter. That point is that with almost 8 billion people, there is plenty of demand for REAL RESOURCES and REAL PRODUCTS of REAL value that support a higher standard of living!

 

Economists love to say "there is no demand"...  ...sure, for useless paper/digital promises and other bullshit financial "products", but so what?  Fuck em.

In reply to by two hoots

Rapunzal two hoots Tue, 03/20/2018 - 12:19 Permalink

eCONomy, is not a science. But they try to sell it to us as if it is. In the end it’s a few who set the rules and the rest has to pay for it. The media supports the whole Scharade and government makes the theft official.

the middle class is kept dreaming they make it as well, by putting faces to the system. Like Musk, Zuckerberg and Gates.

the self made billionaires. But in the end they are only employed by the Rothschilds and Rockefellers as asset managers.

 

hailed by the media as geniuses, but listen to their interviews they are kind of dumb.

In reply to by two hoots

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In reply to by onewayticket2

ZeroSpam slopz38 Wed, 03/21/2018 - 02:42 Permalink

▲▲▲   Slopz38  ▲▲▲ CHRONIC SPAMMER  ▲▲▲ VIRUS ALERT ▲▲▲

THIS IS BUT ANOTHER LOG-ON FROM ZeroHedge's OBSESSIVE-COMPULSIVE WHACKED-OUT ZIT-FACED SPAMMER, here peddling links to ANOTHER spam page, ALSO LADEN WITH TROJANS AND VIRUSES.   DO NOT CLICK ON ANY LINK FROM THIS SPAMMER!!!

>>>>   Slopz38 posted this identical spam post   **75 times** in one day, March 20!!!

This chronic thread-hijacker and poster of "My last paycheck..." spam with Multiple Log-on's (aka "stizazz" and "pier" "beepbop"  "Braveforce"  "PRIVETHEDGE"  "SLOPZ38" "LLOLL"  "JUMANJI1959" -- hopefully banned) is a CHRONIC SPAMMER whose "disguised links" (under other log-on's) will take you to his Spam- and Trojan-laden webpages, fondly known by ZHers as "The Whacked Out Biblicism SPAM page" or "BIBLICISM GOES PORNO" where you will be the happy recipient of numerous virus from this very disturbed and obsessed individual, spamming here for more than five years.

ALL THIS SPAM IS FROM THE SAME SPAMMER!
•dailywesterner
•celebrity-leaks (porn)
•biblicism
•"I made $7000 last week ..... this is what I do"

END SPAM!

Copy and send this text to abuse@zerohedge.com

Please remove all postings and ban log-on from user "LLOLL" who chronically SPAM posts short-URL links to his virus- and trojan-filled website. This is the same individual posting chronically as  "stizazz" and "pier" "beepbop"  "Braveforce"  "PRIVETHEDGE"  "SLOPZ38" "LLOLL"  "JUMANJI1959, among dozens of other banned log-ons [that's YOU "dailywesterner" and "biblicisminstitute" and "celebrity-leaks" (porn) and "I made $7000 last week...."]. Thank you.

In reply to by slopz38

P.K.Snosage Tue, 03/20/2018 - 10:12 Permalink

"February 4, 2018 NEW YORK (Reuters) - Jeffrey Gundlach, the chief executive of DoubleLine Capital, says “it is hard to love bonds at even 3 percent” yield, given the backdrop for accelerating economic growth in the U.S."

 

 

Anyone seen Jeffrey "Icarus" Gundlach? 

itstippy Tue, 03/20/2018 - 10:39 Permalink

It's been clear for the past decade that when global trade retracts and recessions threaten the Central Banks goose things by pouring liquidity into the financial markets.  Bad news is good news for financial instruments thanks to the Central Bank Put.

  • Allocation to banks climbed to the second highest level on record, with net 36% of investors surveyed indicating they are overweight the sector

That sums it up.  Put your money into financial institutions that are Too Big To Fail.  They WILL prosper through good times or bad.  That is the Central Banks' mission, and they have the power to print.  They will do "whatever it takes" to preserve the financial system's Too Big To Fail members.

Blankfuck Tue, 03/20/2018 - 10:46 Permalink

What? NOW NOW! Relax, have a drink, take a pill chill, smoke a stogie 

NOTICE: THE FEDERAL RESERVE FUCKERS OF PONZI LAND WILL KEEP ALL AFLOAT! ITS BEEN THE NEW ECONOMY FOR A DECADE!

NO WORRY HERE!

As Jeff Bozo and other CEOs rake that PONZI in all for themselves. Soon Trillionares from Ponzi La La Land!