"As Boom As It Gets": Wall Street Has Forgotten All About Covid, Sees "Tantrum" As Biggest Risk It was exactly one month ago that Wall Street exhaled a sigh of relief, and according to the March BofA Fund Manager Survey, consensus among Wall Street's professionals was that Covid was unofficially "over"... ... and after a year of covid dominating the league tables as the "biggest tail risk", both inflation & taper tantrum were now viewed as bigger risks. Perhaps in retrospect declaring victory over covid was premature in light of today's J&J vaccine halt, but in the meantime, a bulled up Wall Street has only gotten even more convinced that covid is one for the history books, but that the only risks left are not associated with an economic boom, not a recession, with the latest Fund Manager Survey revealing the following biggest tail risks: i) bond tantrum at 32%, ii) inflation at 27%, iii) higher taxes at 15% and COVID is at a lowly fourth place with 15% of the vote. Only "peak econ growth" was a lesser concern among Wall Street. The remarkable change in sentiment away from a covid dread to one of overheating is seen best in the chart below laying out the evolution of the "biggest tail risk." This theme of "overheating" fears is prevalent across the entire April Fund Manage Survey, which was taken from April 6 to 12 and polled 200 panelists managing $553BN. As BofA Chief Investment Strategist Michael Hartnett summarizes that April survey results, it is "uber-bullish" but no more so than in 1Q, to wit: macro & market optimism among global investors remains very high (taper tantrum, inflation, higher taxation seen as bigger risks than COVID-19, long stocks at 10-year high, long banks at 3-year high); FMS says low wage growth = Q2 bullish risk, disappointing tech/cyclical EPS = Q2 bearish risk. Hartnett is correct that those who read last month's survey won't find many notable changes in sentiment, where euphoria, bullishness and optimism are overflowing, and sure enough past year expectations for “V”-shaped recovery have soared from 10% to 50% (vs down from 75% to 37% for “U” or “W”)... .... global GDP/EPS/CPI optimism “as boom as it gets”... ... though EPS forecasts rolled over a bit, with 85% of FMS investors expecting global profits to improve over the next 12 months, down 4ppt MoM... ... with Biden's infrastructure package fully “priced-in” at $1.9TN Looking at the all important interest rate picture, 6 out of 10 investors say short rate rise next 12 months, up 8% from March and the highest since Jan’19)... ... which may explain why inflation expectations remain at all time highs with 93% of investors expecting higher inflation in the next 12 months... ... leading to record, "massive consensus" of higher growth and higher inflation. Looking at the market, there may have been a shift in sentiment vis-a-vis the biggest tail risk, but the most crowded trade remained "long tech" for the 3rd month in a row.... And while few of the respondents found bitcoin to be the most crowded trade, unlike back in January when paradoxically Wall Street thought everyone was long bitcoin which is impossible since most professional investors can not invest in bitcoin directly - when asked if Bitcoin a bubble “yes” = 74%, said yes... ... while hilarious only 7% said equities are a bubble. This is probably to goalseek the fact that a near record high 62% are net overweight equities (when they should be overweight bitcoin... but they can't so, well, envy). While one can debate who is right or wrong, one thing is absolutely certain: with bitcoin now well above 100% YTD and massively outperforming stocks, we are convinced that every single survey respondent would rather be long bitcoin than stocks. But alas they are not. So how are they invested? Well, in April, BofA founds that the FMS cash level rose to 4.1% (was 3.8% in Feb) with BofA's Bull & Bear Indicator down to 7.1 from 7.2... ... although few expect an imminent correction with the vast maority of respondents say >10% pullback in stocks needs 10-year Treasury yield >2.1%... ... while 2.3% and higher is where most believe that the 10-year Treasury yield at 2.3% makes bonds attractive relative to stocks. Looking at what respondents say they are doing (which is usually vastly different from they are actually doing) BofA founds that investors rotated to tech, healthcare, REITs, out of EM & staples, with investors broadly positioned for boom via long equity, commodity, cyclical allocations (note bank OW and record expectation value beats growth); optimism on EM cut…investors now think S&P500 = best performing asset in 2021, no longer EM. And while a record 53% still think that value will outperform growth... ... the love affair with small caps appears to be ending, with a net 24% of FMS investors now thinking small cap will outperform large cap in the next 12 months. So amid this euphoric bullishness, BofA's own view is that "positioning is peaking" and the bank is "cautious on risk-asset returns." Hartnett says that bearish contrarians playing “peak EPS” should sell commodities, banks & tech... ... while bullish contrarians playing “peak yields” should buy EM, staples & utilities. e Tyler Durden Tue, 04/13/2021 - 14:00