Inflation has become the most important piece of the markets puzzle in recent months. In the outbreak of the pandemic there have been bottlenecks and increases in the prices of raw materials that are generating strong rises in the CPI.
The large central banks, the Federal Reserve (Fed) and the European Central Bank (ECB), have made it clear from the outset that they believe that the rise in inflation will be temporary, and now most of the 258 managers they have surveyed Bank of America in September think the same.
For the first time since May 2020, the prospects of surveyed investors suggest that the CPI will be lower within 12 months than it is now. It is still a small percentage, as only a net 1% of respondents (the percentage of participants who expect it to fall, minus those who believe it will increase) expect inflation to decline in the next year, but it is significant that for the first time in 16 months the general opinion is that the rise in prices will calm down in the future. Now 69% of those surveyed respond that the rise will be temporary , compared to 65% of those who expected it in August.
Although the outlook is less alarming now, that is not to say that the rebound in the CPI is no longer a major concern for managers. It remains the greatest danger, followed by the taper tantrum , the impact of the Delta variant, the bubbles in different assets, the politics of China and the geopolitical events, in that order.
Regarding the positioning that managers have in their investments at the moment, it is particularly striking that the underweight to fixed income has grown to highs in February 2018, although it has already been strong in recent months. Now, a net 69% of respondents say they are underweight bonds.
The contrast between the opinion that respondents have about the economic growth that is going to arrive in the coming months is also striking. Although they continue to expect an improvement in the following year, optimism is the lowest it has seen since March 2020.
However, this has not convinced managers to greatly reduce their exposure to equities at this time: although it has fallen slightly since last month, and the prospects for increasing corporate profit have been reduced to the lowest level since May 2020 (still expecting 12-month growth, but slower) net 50% of managers continue to overweight the stock .
The favorite sectors at this time, with respect to the historical weight they have had in portfolios, are banking, the health sector, raw materials and real estate reits.