A downbeat day is stacking up for Wall Street after surprise rate cuts from China and stronger-than-expected retail sales data.
Prefacing our call of the day is this quote from famed investor John Templeton: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
Now for the call, which comes from Bank of America’s August global fund manager survey, where polled money managers say they are the least bearish on markets since February 2022, with their cash levels dropping from 5.3% to a 21-month low of 4.8%. And cash levels of under 5% mean the end of Bank of America’s contrarian buy signal, notes a team led by strategist Michael Hartnett.
Take note that a “sell” signal for assets is triggered when that cash level drops to 4%, so watch this space, and perhaps next month’s survey.
Three of four managers surveyed expect a so-called soft or “no landing” — the former is seen as the most likely outcome by a 65% of those surveyed. And one in three see no recession at all by the end of 2024. Another big conviction among them is that the Federal Reserve will cut rates next year, as inflation slows further.
Read: Hate to spoil the party, but there’s a new risk in town — a ‘no landing’ economy
While moving out of cash, those managers have backed away from real-estate investment trusts, with the below chart from Bank of America showing a capitulation to levels not seen since the global financial crisis.
Money instead has been shifting into stocks and commodities, but out of the U.S/EU/U.K. and into emerging markets and Japan, and out of industrials and utilities and into energy and technology. That brings us to another point in the survey that long positions in Big Tech are the most “crowded trades,” by a long shot, as this chart shows:
Finally, the biggest so-called “tail” risk — a rare event that could end with severe consequences for markets — is still that high inflation will keep central banks hawkish.
As for contrarian trades, those investors who are risk on will be looking at taking a bullish position on REITs and bearish on bonds, while those who are more wary are bullish on utilities and bearish on technology.
REITs are “most fascinating to watch,” says Hartnett and co. “If no recession, FMS says go max long, but if REITs can’t recover with Lehman-like positioning, then recession could be just around the corner.”
The markets
Dow futures YM00, -0.70% are off nearly 300 points, with the yield on the 10-year Treasury BX:TMUBMUSD10Y at 4.23%, and the dollar DXY and oil CL.1, -0.91% both weaker. The Hang Seng HK:HSI and China’s CSI 300 XX:000300 logged their third losing sessions.
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The buzz
July retail sales came in 0.7% higher, the biggest gain since January, and excluding oil and gas rose 1%, while Import prices saw the biggest jump in a year in July of 0.4%. A gauge of New York-area manufacturing report showed the first negative reading since May. Business inventories and a home builder’s confidence index are due at 10 a.m. Minneapolis Fed President Neel Kashkari will speak at 11 a.m.
Retailers are also reporting this week, starting with Home Depot HD, -0.35% topping second-quarter estimates and unveiling a $ 15 billion buyback program. SAs concerns mount over its economy and real estate woes, China’s central cut two key policy rates. Data just ahead of that showed weak consumer spending and investment growth. Also, China is no longer providing youth jobless numbers, which hit a record in June.
Quarterly filings from hedge fund and other big managers show Warren Buffett’s Berkshire Hathaway BRK.A, +0.05% BRK.B, +0.04% took fresh stakes in home builders such as D.R. Horton and added to Capital One COF, -1.11%, but backed off Activision Blizzard ATVI, -0.46%. “Big Short” trader Michael Burry loaded up on bearish S&P 500 SPX and Nasdaq COMP options, Bill Ackman’s Pershing Square lifted a stake in Alphabet GOOGL, +1.37%, while David Tepper’s Appaloosa took new positions in Advanced Micro Devices AMD, +4.10% and Apple AAPL, +0.94% and dumped a Tesla TSLA, -1.19% stake.
And Dan Loeb’s Third Point took new positions in Nvidia NVDA, +7.09%, Amazon AMZN, +1.56% and Uber UBER, +2.61%.
Russia’s central bank hiked rates by 3.5 percentage points to 12% in an emergency meeting.
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The chart
Weighing in on China’s troubled real-estate market are Société Générale analysts Wei Lao and Michelle Lam who offer the below charts showing how the country’s housing market and funding for its developers has weakened:
Société Générale
The pair say most low-tier Chinese cities have already seen cuts in mortgage rates — one way of helping –while top-tier cities may benefit, but only account for 30% of housing sales. And lingering worries over private developers may dampen any sentiment. “All told, a stabilization of housing sales, which is crucial for economic recovery and financial stability, cannot be said to be just around the corner yet,” say Lao and Lam.
The tickers
These were the most active stock-market tickers as of 6 a.m. Eastern.
| Ticker | Security name |
| TSLA, -1.19% | Tesla |
| AMC, -35.55% | AMC Entertainment |
| NVDA, +7.09% | Nvidia |
| TTOO, +15.42% | T2 Biosystems |
| APE, +16.29% | AMC Entertainment Holdings preferred shares |
| NIO, -2.95% | NIO |
| TAI, | Talmora Diamond |
| AAPL, +0.94% | Apple |
| GME, -1.14% | GameStop |
| MULN, +0.99% | Mullen Automotive |
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