Forty-two percent of hedge fund managers became bearish on stocks in August, up markedly from 27% who were pessimistic on equities in July, according to a survey by BarclayHedge and TrimTabs Investment Research. This is the largest percentage of bearish hedge fund managers in a year.
Conversely, 27% are bullish on stocks, down from 43% the month before.
“This reversal to extremely bearish from markedly bullish is striking,” said Sol Waksman, founder and president of BarclayHedge. “Especially sour moods probably owe in part to the recent crash in the S&P 500, which plunged 16.8% between July 22 and Aug. 8. Additionally, on Aug. 9, the Fed announced it feels downside risks to the economic outlook have increased so much that it plans to keep the policy rate at exceptionally low levels until the middle of 2013.”
Fifty-six percent think the economy is already back in a recession or about to slip into one. Only 3% think the economy will turn net positive.
“This pessimistic view squares with recent downward GDP revisions from the Fed, the IMF and many Street forecasters,” said Leon Mirochnik, TrimTabs associate portfolio manager. “Additionally, hedge fund managers tell us they are most upbeat on defensive sectors, such as utilities and consumer staples, and least upbeat on risk sectors, such as consumer discretionary and industrials. Consumer discretionary is up 20.7% in the past year, the second-best performance of all sectors, but hedge fund managers feel strongly that moving away from risk is now the right way to go.”