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For its September update of its iconic Fund Manager Survey (which has been covered before), Bank of America, 212 panellists managing $616 billion in Assets Under Management (AUM) participated and provided some fascinating (and prescient) insight.
Over the past two months, the percentage of respondents expecting a weaker economy in the next 12 months has increased by 5% since the last survey.
“Stagflation” expectations, i.e. below-trend growth and above-trend inflation, are now at a record high.
With regard to the Eurozone, the survey records a recession to be most likely as a result of the energy crisis (as predicted in previous articles).
Now, over in the US, the Fed Rate hike is pinned as a major influence on market direction: the higher the rates, the lower the market goes. The survey was held a little before the current 75 bps rate hike was done to bring the rates to the 3% to 3.25% range. A majority of the respondents indicate an expectation of the rate to go even further to the 4 – 4.25% range.
An overwhelming majority of the respondents expect this to happen all through 2023, with the largest set of expectations at the Q1 and Q2 periods.
The survey respondents also reported their asset allocation to stocks at all-time lows. It bears noting that “allocation” here means a long-term conviction that holding on to the asset is a “value builder”.
In terms of stock holdings, however, survey respondents indicate that they’re increasing their holdings in “defensives”, i.e. utilities, staples and healthcare stocks.
Outside of equities in general, two sectors/supersectors considered to perform especially badly would be both Eurozone and tech stocks (i.e. generally, the likes of Apple and Google).
Last week, Mr. Jurrien Timmer, Director of Global Macro at Fidelity Management Research (FMR), made an interesting estimation: after the FOMC update was delivered, the forward-looking fair value for the S&P 500 dropped to 14X Forward Earnings Per Share (EPS) that day, which was 15% below that day’s level. If earnings growth ends up being flat (at $219) instead of growing +10%, fair value declines by 36%.
Mr Timmer further stated that equities have seen little outflow, and money markets have seen very little inflow since February 2020. While bond funds & ETFs have seen more material outflows, investors will capitulate and start exiting if the stock market goes down to 3500. The 3500 level is around 5% away from the current day’s level.
Goldman Sachs also indicated last week a familiar theme from earlier articles: the price ratio multiples are rapidly crumbling, as exemplified in the downward trend in the S&P 500’s forward multiples.
Furthermore, Goldman Sachs estimates that there will be no GDP growth in the US for the calendar year 2022 while 2023 might see a 1.1% increase.
With regard to the S&P 500, Goldman Sachs also had a similar assessment: the index is expected to end 2022 roughly 1.6% away from the current day’s level in a “soft landing” scenario and at 3400 in the “hard landing” scenario. Both scenarios see a recovery in 2023 which would still be far below highs seen earlier this year.
Researchers at Citi warned last week that the Eurozone, Brazil and Canada will be entering recessionary periods in Q4 or shortly thereafter.
The researchers, interestingly, estimate the U.S. to be entering a “recessionary period” from Q3 of 2023 onwards, while Germany and UK are both indicated to already be in recession.
Also interesting is the conclusion that China isn’t in recession. While it’s entirely conceivable that the Chinese government will be loathe to declare it, estimates from its own Customs Bureau indicate exports to the U.S. (one of its largest trading partners) shrinking as consumption outlook diminishes. Infrastructure and exports are two very important pillars of the Chinese economy. However, it’s possible that there isn’t nearly enough reliable data right now for the researchers to make any prognostications about China.
Also, a report from Deutsche Bank last week indicates that its homeland Germany will likely be bearing the brunt of GDP shrinkage in the Eurozone in the next year.
The sampling of outlooks offered via the likes of Bank of America, Fidelity, Goldman Sachs, Citi and Deutsche Bank are neither a sea change from opinions offered in earlier months nor limited to these companies alone’ most reports published by leading institutions have been grim for the past 2-3 months offered above. Given that the year is three-quarters done, the conclusions arrived at are getting more and more concrete. For investors continuing to buy into the idea of an upward swing in market valuations, the warning most suitable would simply be: “Caveat emptor!”
Exchange-Traded Products (ETPs) offer substantial potential to gain magnified exposure with potential losses limited to only the invested amount and no further. Learn more about Exchange Traded Products providing exposure on either the upside or the downside to the S&P 500, the upside or the downside to the Nasdaq-100, and the upside or the downside to the German DAX.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
