FNArena’s Weekly Insights – July 28 2022
In this week’s Weekly insights:
-‘I’m so Bearish, I’m Bullish’
-Corporate Earnings: Between Dr Jekyll & Mr Hyde
-Conviction Calls
-FNArena Talks
By Rudi Filapek-Vandyck, Editor FNArena
‘I’m so Bearish, I’m Bullish’
Economists at Oxford Economics summarised this year’s financial market’s dilemma as follows: The risk of a global recession has clearly grown. It’s far from inevitable, still, but orchestrating a soft landing will require luck.
It has taken this long into the calendar year -approximately seven months- but a global recession has now pretty much become the consensus view among financial institutions. Such is the conclusion drawn by Bank of America analysts following BofA’s latest monthly global fund managers survey.
The July survey, reported BofA, embodies full capitulation with respondents signalling expectations for global growth and corporate profits have sunk to all-time lows, average cash levels have risen to the highest since 9/11, with equity allocation at its lowest since Lehman Bros went bankrupt in late 2008.
The BofA Bull & Bear Indicator remains at “max bearish” triggering the response: I’m so Bearish, I’m Bullish.
Market fundamentals are poor, acknowledges BofA, but overall sentiment is extremely poor, increasing the likelihood that equities and credit will rally over the weeks ahead.
Further fueling the thesis of market sentiment having sunk too deep, too quickly was the observation by analysts at JP Morgan that short positioning for US futures had accumulated to an all-time record high.
No surprise, some market commentators have made a connection with short covering to (at least partially) explain the general improvement in equity indices this month.
Volumes are dreadful, so any change in those cash levels or short positions would have had a larger-than-usual impact.
As I Tweeted last week:
“What Bear Market teaches us is there are a million reasons to sell/buy a stock; only a few are related to a specific company’s underlying fundamentals. Something to keep in mind also when the next Bull Market rages on high volume.”
