A “pain trade” is one that generally catches a lot of investors off guard. Sentiment surveys can be reliable contrarian guides when too much of the market gets caught on one side.
Most of the signs in March pointed toward caution, though cash allocations did fall two-tenths of a percentage point to 4.6 percent equating to a net 40 percent overweight, down from a decade high recorded in February.
Professional investors now worry most about a slowdown in China, cited by 30 percent of respondents. The second-biggest concern is the U.S.-China trade war, which had topped the worry list for nine straight months.
Though Hartnett said the defensive posture in the market points to upside, BofAML’s bull-bear indicator, which measures allocations, is in “neutral” territory. Survey respondents consider the U.S. dollar at its most overvalued since June 2002 but said the most crowded trade is a bet against European stocks.
Economic growth expectations improved as did those for inflation, with a net 34 percent of investors expecting a higher consumer price index over the next year.
When it comes to interest rates, 55 percent of respondents said they think the Federal Reserve will continue to raise rates, against 38 percent who expect the tightening cycle to be finished. The central bank’s policymaking committee begins its two-day meeting Tuesday, with the market expecting no rate hike.
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