Fund managers haven’t been this optimistic on the economy and corporate profits in almost two decades, and they are buying a lot of stocks, according to the latest
Bank of America
survey of 216 managers with $573 billion assets. As cautious and skeptical as a contrarian investor should be, that might not be a bad thing.
Over the past month, the net percentage of managers believing in a stronger economy and improving global profits in the next 12 months––the number of those that agree minus those that disagree––has hit the record-high since March 2002. Meanwhile, the net percentage of managers who are overweight in stocks jumped to the highest level since January 2018.
On the other hand, managers’ allocation to cash continued to fall last month and now sits below the pre-Covid levels at just 4.1%. At the height of the pandemic-triggered market volatilities, cash levels peaked at nearly 6%. But over the past seven months as the economy reopens, fund managers have been continuously shedding their cash positions.
The sentiment is approaching “extreme bullish,” according to Bank of America.
Investors often view this kind of smart-money surveys with a contrarian lens. When group thinking is pointing in a clear direction, the market’s next move is likely to be in the opposite direction––or what many call “the reversal to the mean”.
But this hasn’t been the case so much with the widely-followed Bank of America fund managers survey, according to Jason Goepfert, president and CEO of SentimenTrader.
Historically, when the net percentage of stock-overweight managers were 40% or above, he noted, the S&P 500’s annualized return was actually an impressive 22.5%. When the percentage is negative, meaning more managers were underweight stocks, the index declined an annualized 1.5%.
The latest survey also pointed to an “unambiguous rotation” in asset allocation to emerging markets, small cap, value, and bank stocks, which is fueled by money leaving cash, bonds, and consumer staples.
Emerging markets stocks, particularly, have seen the largest month-to-month allocation increase in more than three years––a 23 percentage-points jump to net 36% overweight. It is now the most preferred region, beating both the U.S. and eurozone.
While some might be concerned that managers have bought too much into the nascent outperformance of emerging markets and the trend might reverse soon, Goepfert isn’t so worried. Other times when managers were relatively overweight in emerging markets, it didn’t lead to a consistent underperformance of the group relative to the S&P 500, he wrote in a Thursday note to clients.
Still, the survey remains a contrary indicator in other aspects. For example, when managers decided to bet on small stocks versus large ones, the Russell 2000 often underperforms the S&P 500 in the following months. That’s what we are seeing now. “[Fund managers] are currently enamored with small-cap’s prospects relative to large-caps, which has not been a great sign for the lil’ guys over the past 14 years,” wrote Goepfert.
Similarly, in the latest survey, a record net 73% of managers said they expect to see a steeper yield curve in the coming months, a higher percentage than during the 2008 Lehman bankruptcy, 2013 Fed taper tantrum, and 2016 U.S. election. In the past, says Goepfert, when managers were this confident that the yield curve will steepen, the curve often promptly flattened.
“Like everything, it pays to watch how these factors play out in the coming months,” he wrote. “If small-caps continue to outperform and the yield curve continues to steepen, then we’ll have some good evidence that this time is indeed different than the multiple false starts over the past decade.”
Write to Evie Liu at firstname.lastname@example.org
Can't solve economy issue without solving COVID-19, says professor – KitchenerToday.com
It’s a classic case of trying not to put the cart before the horse.
There’s no doubt the economic disaster is caused by the COVID-19 pandemic, but an associate political science professor at Brock University indicates you can’t solve the economic crisis without dealing with the health crisis first.
“You can’t have a strong functioning economy if you’ve got the disease running rampant in the community, it just can’t happen,” Blayne Haggart told The Mike Farwell Show on 570 NEWS.
He said economists have been clear on the issue from the beginning, advocating for financial support on the health side and figuring out later how to pay for it.
Haggart said overall, while we started off the pandemic well and saw numbers begin to drop, not enough was done to prepare for fall and winter, such as adequate investments in contact tracing and testing.
He said when it comes down to it, just the mere presence of the virus is causing the economic problem, not the restrictions related to it.
“People are not going to go into shops (as per usual), even if there’s no government intervention, because people don’t want to die,” Haggart added.
“Some people will, but a lot won’t, so businesses are going continue to be depressed up until the moment where the disease finally hits a breaking point, where we’ve got to basically close things down, or everybody gets sick.”
“That’s the kind of roller coaster that we’re on, and the key is to get off it. The longer you wait, though, the more costlier it is to get off the roller coaster.”
Reimagining the global economy for a post-COVID-19 world – Brookings Institution
When the COVID-19 pandemic sent the global economy into a deep recession, it exposed structural weaknesses in economic institutions and highlighted the need for reform. The challenges countries face today are daunting, but this moment should be recognized as an opportunity to build back more sustainable and inclusive economies. David Dollar is joined by three Brookings experts—Eswar Prasad, Marcela Escobari, and Zia Qureshi—to discuss their forward-looking policy proposals for a post-COVID-19 world.
Prasad, Escobari, Qureshi, and Dollar are all contributors to a new report, “Reimagining the global economy: Building back better in a post-COVID-19 world.”
Singapore upgrades third-quarter GDP, sees economy returning to growth next year – TheChronicleHerald.ca
SINGAPORE (Reuters) – Singapore’s economy contracted much less than initially estimated in the third quarter due to gradual easing of COVID-19 lockdown measures and authorities expect the city-state to bounce back to growth next year from its worst recession.
Gross domestic product (GDP) fell 5.8% year-on-year in the third quarter, the ministry of trade and industry said on Monday, versus the 7% drop seen in the government’s advance estimate.
Analysts expected a 5.4% contraction, according to the median of 10 forecasts.
The government said it now expects full-year GDP to contract between 6.5% and 6% versus its prior forecast for a 5% to 7% decline. The country is still facing the biggest downturn in its history.
The economy is expected to grow 4% to 6% next year.
“The recovery of the Singapore economy in the year ahead is expected to be gradual, and will depend to a large extent on how the global economy performs and whether Singapore is able to continue to keep the domestic COVID-19 situation under control,” the MTI said in a statement.
The economy grew 9.2% from the previous three months on a seasonally adjusted basis, compared with the 13.2% contraction in the second quarter. The bounce marked the end of a “technical recession”, as it followed two preceding quarterly contractions.
(Reporting by Chen Lin and Aradhana Aravindan; Editing by Sam Holmes)
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