Investors are adjusting their global equity positions, favoring US stocks and reducing their overall overweight stance, according to Bank of America's monthly fund manager survey (FMS).
Analysts at the bank note that the survey respondents are “very optimistic on rate cuts and macro "soft" landing.
However, “Jan cash levels are up from 4.5% to 4.8% as bond market optimism tempered, and bonds driving the "herd"; BofA Bull & Bear Indicator up to 5.5, highest since Nov'21.”
Overall, the positioning is not contrarian, the analysts argue that “new catalysts (e.g. global growth) [are] required for upside.”
Investors are notably bullish on the prospect of rate cuts, with the most crowded trades identified as "long Magnificent Seven" and "long-duration tech."
The shift involves a rotation from bonds to cash, a move from banks to real estate investment trusts (REITs), and a preference for small caps over large peers for the first time since June 2021.
While investors are the least pessimistic on global growth since February 2023, concerns arise about China's growth weakening for the first time since May 2022.
Key contrarian trades include long China, Europe, banks, energy, and low-quality stocks. These contrarian longs are viewed as catch-up plays with room for positive growth.
On the flip side, contrarian shorts involve positions in bonds, the United States, and the so-called "Magnificent Seven."
These positions are considered vulnerable to both "hard" and "no" landing outcomes, suggesting potential challenges or downturns in these areas.