Buying shares in Big Tech companies and shorting US banks are currently the 'most crowded' trades, according to the monthly Bank of America global fund manager survey, with sentiment deteriorating this month to the most bearish of the year so far as investors raised cash balances and turned more pessimistic on growth.
The 'long big tech' trade has increased to 30% in May from just below that mark the month before, from the 251 participants with US$666bn of funds under management.
Around 22% were short US banks, up from 18% in April's survey.
Net 65% of respondents now expect a weaker US economy, up from 63% in April, and little change to the 47% expecting a recession in the next 12 months, though there is also "fading optimism" for a strong China rebound, with a net 55% expecting a stronger Chinese economy, down 28 percentage points on the month.
Looking at expectations for the US Federal Reserve, 61% reckon the rate hiking cycle is done, leaving a third saying the opposite; with the first Fed rate cut predicted in the first quarter of 2024 getting support from 43% of respondents, followed by 24% for the second quarter.
As for a focus on European equities, 72% of investors expect downside over the coming months in response to monetary tightening, up from 70% last month, though the view on the coming 12 months has moderated to 51% from 55%.
Slowing inflation and growth is expected to lead to lower earnings, for 84% of managers surveyed.
Pharma has taken over from tech as the most popular sector in a defensive rotation, with utilities and food & beverages completing a strong defensive shift in the top four overweight positions.
The most disliked sector is real estate, now followed by mining, while banks are in mild underweight territory.
Around 53% of manager respondents see further downside for European cyclicals relative to defensives in response to slowing growth, slightly lower than 58% last month.
Among European countries, France remains the most popular overweight, followed by Switzerland, while Italy and Spain are the least preferred.