More than 50% of global fund managers expect equities to surge this quarter, according to a Bank of America (NYSE:BAC) (BofA) survey.
This aligns with a shift into cash by sophisticated investors in October and November — cash levels rose to 5.3% in October, up from 4.9% in September. Cash levels of above 5% are a contrarian indicator and have triggered a "buy" signal, says BofA.
Notably, the same "buy" signal resulted in a 2% return on the S&P 500 in the subsequent two months since 2011, which extended to 7% in the next half year.
Yet caution persists and investors remain risk-averse, but slightly less so in October than September. High-quality earnings are preferred over low-quality by almost seven investors surveyed and investors shifted towards favouring large caps over small caps.
Rate hikes over?
More than half of survey respondents said monetary policy was too tight and fiscal policy too stimulative — the most on record. Around 60% believe the US Federal Reserve has finished raising rates, and half expect the first rate cut in the second half of next year.
Yet in line with the 'higher rates for longer' global policymaker mantra, 10% of fund managers don’t expect a rate cut until after 2024 — up from last month's 5%. The most crowded trades right now are long big tech, at 37%, short China equities, at 21%, and long Japan equities, at 11%.
The survey data was collected from October 6 to October 12 and included responses from 295 fund managers managing assets worth US$736 billion ($1.16 trillion).