America’s Top Money Managers Are Hiding In T-Bonds

Federal Reserve Chairman Jerome Powell

The country’s top investors are running for cover according to the latest Bank of America Merrill Lynch Fund Manager Survey. Government bonds, their preferred hiding place during times of trouble, have become extremely popular over the last few weeks as a result – even exceeding the red-hot tech sector.

It’s the first time ever in the survey’s history (which dates back to 2013) in which T-bonds (government securities with maturity dates > 10 years) have been the preferred investment vehicle among money managers.

27% of survey respondents selected government bonds as their number 1 choice at the moment, followed by tech (26%), U.S. dollars (18%), and shorting Euro-stocks (9%). It was a bizarre spread to say the least, but it reflects a widely held opinion on Wall Street:

Nobody is quite sure what’s going to happen with the market outside of tech.

And even then, the tech sector is “up in the air” as well, as fund managers are likely targeting high-growth software firms these days – NOT the traditional FAANG stocks that got us to where we are.

In general, the survey confirms that more than anything else, advisors are nervous about an economic slowdown that could work its way into nearly every industry, compounded by fears of increased global trade tensions.

It’s certainly become a sideshow affair – one that now dictates the direction of equities nearly as much as interest rate headlines, which by the way, have become the focus for the current trading session.

The American economy could be going to hell in a handbasket, but it wouldn’t matter to investors so long as Fed Chairman Jerome Powell slashes rates.

In fact, this morning the Dow jumped 350 points higher right as a Fed meeting kicked off. Powell & Co. will be discussing monetary policy (as expected of a central bank), and it seems as though the market is hoping to hear an official rate cut announcement by the end of the day.

In anticipation, investors are snapping-up equities yet again, even though the market looks arguably overbought after going on a historic rally just two weeks ago.

But that’s not stopping top analysts from having very high expectations of today’s Fed pow-wow.

“Short of easing tomorrow (about 20% priced in), Powell needs to send a strong enough message to the market [that rate cuts are coming],” said Gregory Faranello, head of U.S. rates at Amerivet Securities, in a note.

“I do feel, though, the Fed needs to take back some control here. We have gone from the market chasing the Fed (4 hikes) to the Fed chasing the market (3 cuts) in a very short period of time.”

And though it might be all “sunshine and rainbows” for bulls – especially now that Trump announced he would meet with President Xi Jinping at the G-20 summit – there’s still some inherent danger when the market gets its hopes up like it has this morning.

Should Powell say something that’s less-than-inspiring, like announcing a rate cut scheduled for September instead of July, the resulting disappointment could be ruinous for the current rally, which has been propped up on extreme rate-related optimism.

We’ll find out this afternoon if Powell’s ready to “play ball” with investors, but until then, it might be prudent to stay away from the hysteria.

Remember, Wall Street loves beating retail investors to the punch. This morning, they did it by buying every stock under the sun.

They’ll be more than happy to sell-off en masse tomorrow if Powell’s post-meeting message disappoints – burying the portfolios of “little fish” market participants in the process.


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