2023-05-02 14:41:43
Recession,
02 May, 17:41
BofA says investors are preparing for a ‘2009-style recession’
Professional investors sell stocks that are sensitive to economic cycles and invest in stocks that are considered resilient during economic downturns.
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Increasingly, professional investors are moving money out of cycle-sensitive stocks like banks and investing in stocks of companies deemed resilient during economic downturns, including utility companies and commodities makers.
Hedge funds that bet on both rising and falling stocks have cut their holdings in cyclical assets versus defensive stocks to their lowest level since 2012, according to Bank of America data. writes Bloomberg. And growth-only stock managers have cut investments in cyclical companies, which depend on changes in the business cycle, to the lowest level since 2008.
After the S&P500 index reached a local low in October 2022, the capitalization of the US stock market increased by regarding $5 trillion by the beginning of May. However, changes in rates among hedge fund managers suggest that, in general, active stock buyers are “ready for a 2009-style recession,” Bank of America strategists said.
Demand for defensive stocks is a reversal of last year’s trend when active funds preferred cyclical sectors. This position indicated the expectation that the US Federal Reserve would be able to provide a “soft landing” with the help of measures to combat inflation – as a result, the economy would avoid recession. Now it is difficult to find such confidence among investors, the newspaper writes.
Since March last year, the Fed has raised rates nine times in a row to ease inflationary pressures in the US. However, consumer price growth continues to exceed the regulator’s target of 2%. In March, inflation in the US amounted to 5% in annual terms. Interviewed Archyde.com analysts expect the Fed to raise interest rates rates by 25 b.p. at the next meeting in May, and then keep rates at the current level until the end of 2023.
Data on the positioning of investors in the sectors has become another sign of “bearish” sentiment among professional players. In April, Bank of America’s survey of large fund managers showed that portfolio cash remained strong and bond holdings outnumbered equities more than at any time since 2009.
Fall bettors attributed much of the stock’s rise in 2023 to demand from price-insensitive investors who have no choice but to buy stocks when prices rise, so recent months’ gains are unsustainable. Shares were also supported by better-than-expected economic and corporate earnings data. And while companies have delivered better-than-estimated results this reporting season, it’s still not enough to get the economy back on track. Even the Fed predicted a moderate recession that might start as early as this year.
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However, according to Savita Subramanian, head of US equities at Bank of America, the historical record is that going on the defensive too early in preparation for a recession might end up costing professional players dearly. According to the bank’s calculations, the ten most cyclical industries tend to perform best in the six months leading up to a recession. It was only during actual recessions that defensive stocks began to perform well, with their lead usually ending before the end of the down cycle.
According to an expert from Bank of America, when it comes to a recession, you should not prepare for it in advance, but rather wait. Subramanian also said Bank of America economists are forecasting a US recession in the third quarter of 2023.
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Marina Mazina.
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