Only 17 per cent of hedge fund managers are bullish on the S&P 500, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for August.

About 47 per cent of the 104 hedge fund managers surveyed in the past week are bearish on stocks, up markedly from 33 per cent in July.

“Bearish sentiment skipped sharply higher, and bullish sentiment plunged,” says Sol Waksman, founder and president of BarclayHedge. “Meanwhile, short interest is heaviest in the most cyclical sectors, and from a seasonality standpoint September is far and away the worst month of the year for stocks. The developments hedge fund managers are telegraphing bode ill for equities.”

Sentiment on the US dollar is evenly split, as 29 per cent of managers are bullish and 29 per cent are bearish. Almost half of managers were upbeat on the greenback just three months ago. As to US debt, only 17 per cent of managers are bearish on ten-year US Treasury notes. Bullish sentiment vaulted to 36 per cent from 14 per cent in the past two months. 

“Many fund managers have had their heads handed to them betting on an increase in long-term interest rates,” says Vincent Deluard, executive vice president at TrimTabs. “If you can’t beat ‘em, join ‘em? Retail investors continue to exhibit an insatiable appetite for bonds — bond mutual funds have sucked in a staggering USD679bn since the start of 2009. Mom and pop are disgusted with US equities, so bond fund inflows are bound to bloat further.”

About 63 per cent of managers want to see the Bush tax cuts extended in some form. Half of managers think decreased deficit spending is warranted, while 18 per cent feel the government should spend more. Almost all of the managers who prefer tighter monetary policy also prefer tighter fiscal policy.

“These ‘double’ hawks are pessimistic about the economy and stocks — only six per cent of them are bullish on the S&P 500,” says Deluard. “They realise their policy prescription is too distasteful for the government and the Fed, and they fear  that record deficits and ‘exceptionally low policy rates for an extended period’ read a bit too much like another Greek Tragedy.”


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