Global fund managers turned bearish on global equities this month according to the latest BAML Global Fund Manager Survey. In fact, they are considered to be at their most bearish since November 2016 as their level of global equity allocations have fallen to the lowest level since that time. This survey of 178 managers is usually interpreted from a contrarian point of view. In other words when the managers reach an extremely bearish position it can be interpreted as bullish for equities – note that November 2016 was the U.S. election and stocks rallied sharply from there, see chart below.
The risk of an escalating trade war was cited as the number one fear for 60% of managers and is clearly the reason for the change in sentiment this month. Despite their worries though the U.S. market has been holding up well with the Nasdaq and Russell 2000 (small-caps) indices reaching new highs last week. On Thursday, Fed Chairman Powell added his concerns regarding a negative impact for the economy should there be a period of higher tariffs but at the same time said, “I sleep pretty well on the economy right now.”
Retail Bears as well
Chart below shows data from www.lipperusfundflows.com. In the week to 4th July they reported U.S. Equity Fund (including ETF) outflows of -$8.3 Billion. We show (black line) a summated net flow over four weeks and to that date it reached a negative -$39.3 Billion (arrow). This is worth mentioning because it is an extreme outflow indicating some real fear from retail investors. Again, this is a contrarian indicator – extreme negative sentiment like this is more typically seen at market lows than highs.
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