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Investor sentiment has turned so bullish that Bank of America’s Michael Hartnett thinks it’s time to consider a few contrarian trades. The February BofA Global Fund Manager Survey showed that sentiment has improved further to the most bullish level in more than two years, based on cash levels, equity allocation and economic growth expectations. For the first time since April 2022, investors stopped predicting a recession in the U.S., the BofA survey showed. Meanwhile, allocation to U.S. stocks hit the highest level since November 2021, and allocations to the tech sector were the most aggressive since August 2020. The Wall Street firm’s widely followed investment strategist Hartnett is recommending a few contrarian trades for a “hard landing” scenario this year. He said investors could go long cash and defensive stocks, while shorting technology shares that have led the market rally over the past year. The so-called “Magnificent Seven” group — Microsoft, Apple, Amazon, Meta Platforms, Alphabet, Nvidia and Tesla — has been the most crowded trade since the long dollar trade in October 2022, marking a “big inflection point,” Hartnett said. For a “no landing” scenario, where the economy would continue to grow but inflation stays high, the strategist recommends buying commodities, energy stocks as well as the greenback. In this case, investors could also benefit from shorting bonds, he added. About 65% of the fund managers polled by Bank of America still expect a “soft landing” scenario is the most likely outcome, but the sentiment has shifted away from anticipating a marked economic slowdown toward a no landing result.
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