Active Stock Pickers 'Positioned For 2009-Style Recession,' Say Bank Of America Strategists

Author: Bhavik Nair | May 02, 2023 03:44am

As fears of a recession continue to loom large, professional stock pickers are reportedly shifting money from economically sensitive shares like banks and are parking it in stocks that are considered resilient during economic downturns, such as utilities and consumer staples.

What Happened: Bank of America strategists led by Savita Subramanian wrote in a note that active stock pickers are "positioned for a 2009-style recession."

Hedge funds that take both bullish and bearish positions have trimmed their cyclical holdings as compared to defensive stocks to the lowest level since at least 2012, reported Bloomberg, citing data compiled by BofA.

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Long-only managers' relative exposure to cyclical companies currently hover near the lowest level since 2008, the report added.

U.S. markets ended in the red on Monday as market participants weighed in the news of JPMorgan Chase & Co (NYSE:JPM) taking over First Republic Bank (NYSE:FRC) and displayed cautiousness ahead of the Federal Reserve's interest rate decision this week. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 0.1% lower while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) lost 0.11% on Monday.

Bonds vs. Equities: In BofA's latest survey of money managers in April, cash holdings remained elevated and bonds were preferred over stocks more than any time since 2009.

The recent tilt towards defensive stocks is a departure from the trend in 2022 when recession fear loomed large and active funds were holding onto a cyclical stance, the report said. That stance indicated faith in the Federal Reserve's ability to engineer a soft landing with its aggressive inflation-fighting policy. However, such confidence is hard to find in recent times, the report said.

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