A dash to cash in a zero interest-rate environment tended to be an expression of pure fear. That's no longer the case now that rates are so much higher. Photograph: Angela Weiss / AFP via Getty Images“Fund managers turn bearish again in October”, one headline read. “Fund managers bet on year-end equities rally”, read another. Both are correct. Yes, bearishness has risen. The percentage of investors expecting a recession in the first half of 2024 is rising.
This is a contrarian indicator, with readings above 5 per cent associated with above-average returns over the following two-, three- and six-month periods. Similarly, BofA’s Bull and Bear indicator is now at 2.2 – very close to the 2.0 level that triggers a tactical buy signal.Still, other signals are more mixed. Hard landing expectations are rising but a soft landing remains the base case among investors. More than half of investors expect stocks to stick to the usual seasonal script and enjoy a year-end rally.
As for the dash to cash, spikes in cash allocations during the zero-rate environment over the last decade tended to be expressions of pure fear. In contrast, the current move towards cash looks more understandable, given rapidly rising interest rates. Investor bearishness is rising, but contrarians won’t be getting too excited just yet.