Posthaste: As the bear market roars back to life, BofA survey signals ‘deeper investor misery’

Good Morning!

The bear market came roaring back yesterday after four straight days of losses pushed the S&P 500 more than 20% below its peak. 

The MSCI ACWI Index, a key index of equities from around the world, also slipped into bear territory, when it fell 21% from it November peak. This morning futures struggled to hold on to gains.

Just as that was happening BofA Fund Manager Survey for June signalled “deeper investor misery.”

Global growth optimism has sunk to a record low, and fears of stagflation are at the highest since the 2008 financial crisis, found the survey entitled “Summer of Volcker.”

Profit expectations have also tumbled to the weakest since September 2008, and the strategists note that all other big lows have occurred at Wall Street crisis moments such as the bursting of the Dotcom bubble and Lehman Brothers bankruptcy. 

Not a cheery picture. 

Polling for the survey, which included 266 participants with $747 billion under management, closed before Friday’s scorching inflation data “shattered” hopes of the U.S. Federal Reserve pausing rate hikes. 

“Wall St sentiment is dire but no big low in stocks before big high in yields & inflation, and the latter requires uber-hawkish Fed hikes in June & July,” wrote the team led by Michael Hartnett.

Hawkish central banks are now seen as the biggest “tail risk” followed by global recession and inflation, with the Russian-Ukraine conflict and COVID sinking close to the bottom of the list.

Investors are long on cash, healthcare, commodities and energy and short on bonds, consumer discretionary, utilities, and equities. 

Sixty-seven of the fund managers think oil will produce the best returns in 2022, up from 56% the month before. They are also the most underweight on equities since May 2020. 

So what’s an average investor to do?

BofA suggests in an earlier note that if market turmoil is getting you down, turn to the wisdom of Bob Farrell, one of the pioneers of technical analysis. 

Farrell retired from Merrill Lynch 20 years ago, but his 10 Market Rules to Remember remain relevant today.

“An equity bear market, the highest inflation in 40 years, a Fed hiking cycle and Value vs Growth are all causing deep investor concerns,” wrote BofA Global Research. 

“Farrell’s rules suggest that equity corrections are normal, the upward reversion for interest rates can continue and that a bigger rotation to Value from Growth is underway.”

Just in case you’ve forgotten them …

10 Market Rules to Remember

• Rule 1: Markets tend to return to the mean over time
• Rule 2: Excesses in one direction will lead to an opposite excess in the other direction
• Rule 3: There are no new eras – excesses are never permanent
• Rule 4: Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
• Rule 5: The public buys the most at the top and the least at the bottom
• Rule 6: Fear and greed are stronger than long-term resolve
• Rule 7: Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names
• Rule 8: Bear markets have three stages – sharp down – reflexive rebound – a drawn-out fundamental downtrend
• Rule 9: When all the experts and forecasts agree – something else is going to happen
• Rule 10: Bull markets are more fun than bear markets _____________________________________________________________