We talk a lot in this commentary about sentiment, and how it can impact market moves. We pointed out that in mid February equity sentiment had apparently fallen to the lows seen in the dark days of 2009. If the latest Bank of America survey is to be believed fund managers remain skeptical of any continued rally in equity prices. Cash levels remain high and fund manager conviction is at an 18 month low. Interestingly fund managers, according to this report, remain long the US dollar, underweight emerging markets and overweight quality. They continue to be wary of commodity related sectors. In all the years following the stock market, if the market falls sharply from here, in our experience this will be the first one that most fund managers appear prepared for. It appears that not only fund managers remain cautious. The latest US small business confidence index fell to a two year low in March according to CNBC.
The IMF also remains wary of the outlook for the global economy and warned again on Tuesday they believe risks of a Brexit will impact the global economy. Reported in the Financial Times the IMF believe “ the increasingly disappointing” world economy is facing the threat of a “synchronized slowdown”, and mounting risks including another bout of financial market turmoil. Some fund managers may be hoping for just that if their positioning is anything to go by. The IMF obviously failed to listen to our call for looking on the bright side. In tune with this gloom the IMF lowered global growth forecasts by 0.2% for 2016 to 3.2%. In their analysis of economic growth for major economies, they forecast the UK and USD economies will now grow by 1.9% this year, they are most optimistic about the euro area where they expect growth to be at 2.4%.
The earnings season is upon us and this may well impact market direction in the coming weeks. The US banking sector starts reporting later on the week as the traditional season opener, Alcoa, reported last night. The shares fell initially despite the company reporting a better than expected earnings figure. The reason for the disappointing reaction by the market was a weaker than expected revenue line. Alcoa lowered its expectations for growth in the aerospace market for the year from 8-9% to 6-8%.
How did the equity markets take all this gloomy news on Tuesday, they rallied as the oil price rose.