When Donald Trump emerged as the victor in the early morning of November 9, markets plunged – then promptly recovered and went on to log a series of all-time highs. The S&P 500 has risen 6.3% to 2,274.64 as of Friday's close. A couple of sectors have done even better: the iShares U.S. Financials ETF (IYF), which counts large banks such as JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) among its largest holdings, is up 13.0% over the same period.

And that's all without Trump even having taken office. According to Bank of America Merrill Lynch's (BAML) most recent monthly global fund manager survey, conducted from January 6 to 12, global growth expectations are at a two-year high, with net 62% of respondents expecting a stronger economy over the next 12 months (up from 57% in December). The share of investors expecting above-trend growth and inflation hit a five-and-a-half-year high. (See also, December: Profit, Growth, Inflation Expectations Hit Multi-Year Highs.)

How do you think the global real economy will develop over the next 12 months?

All images courtesy of Bank of America Merrill Lynch.

More good times to come then? Perhaps, but cracks are showing in the Trump rally's edifice. Cash holdings, a proxy for investor caution, rose between December and January. They are currently at 5.1%, "well above" the 10-year average of 4.5%. (See also, November: Fund Managers React to Trump.)

Global fund manager survey average cash balance

And while the highest share of respondents in five years expect inflation and growth to beat the trend, that share is still just 17%. In December it was 12%. 

How do you see the global economy trend in the next 12 months?

Asked what they thought the biggest "tail risks" were, the fund managers BAML surveyed named "trade war/protectionism" (29%) and U.S. policy error (24%), indicating that most see Trump himself as the biggest risk to the Trump rally; 15% named a devaluation of the Chinese currency or an end to the country's property bubble. Meanwhile, fears of EU disintegration or a collapse in its banking sector have subsided. 

What do you consider the biggest 'tail risk'?

Contrarian Picks

If you have doubts about the durability of the Trump rally, you might consider a contrarian strategy. Long positions in banks are around two standard deviations above their historical levels since 2001. Small-cap value stocks are also a potential short for post-inauguration contrarians, according to BAML. For those looking to go long on undervalued assets, emerging markets, Britain, commodities, the euro and large-cap growth stocks are all candidates. (See also, Rich Profits: How Contrarian Investors Are Winning.)

The longs and shorts, relative to global fund manager survey history*

*Since 2001, except commodities and real estate (since 2006)

Long positions in the U.S. dollar, meanwhile, are the "most crowded trade by [a] country mile." A net 22% think it is overvalued, the highest proportion in over 10 years. (See also, Euro-Dollar Parity Is Back.)

U.S. dollar valuation and trade-weighted index

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