Investors are turning bearish once more, flocking to cash as economic growth expectations falter, according to Bank of America Corp.’s global fund manager survey.
(Bloomberg) — Investors are turning bearish once more, flocking to cash as economic growth expectations falter, according to Bank of America Corp.’s global fund manager survey.
The broadest measure of sentiment — based on cash positions, equity allocation and economic predictions — fell in the October poll after showing an improvement in the summer months, strategists led by Michael Hartnett wrote in a note. Cash levels as a percentage of assets under management have climbed above 5%, they said.
Growth expectations are still pessimistic with a net 50% of investors expecting a weaker global economy over the next 12 months. Concerns about a hard economic landing are on the rise, advancing to a net 30% of respondents this month from 21% in September. At the same time, the soft landing of a “Goldilocks” scenario remains the base case.
Hartnett and the other analysts said there’s an “ongoing disconnect between equity market and growth expectations.”
The S&P 500 is recovering in October after a two-month slump fueled by worries about tight monetary policy and soaring bond yields. The benchmark is still 14% higher this year, and focus is now turning to the earnings season with the survey showing the least-pessimistic profit outlook since February 2022.
The majority of investors are still convinced the Federal Reserve has finished its rate-hiking cycle and bond yields will fall over the next 12 months, the poll results show. More than half of respondents see a year-end rally in stocks during the fourth quarter. In a contrarian buy signal, the cash allocations at their current level have typically preceded gains of 7% in the S&P 500 index over the coming six months.
The survey showed the biggest tail risk is high inflation keeping central banks hawkish, followed by worsening geopolitics.
In terms of equity allocation, fund managers stayed neutral on stocks, but rotated out of euro-zone equities into US shares in October at the fastest pace since September 2022. Hartnett said positioning shows the 4,200 level is a hard floor for the S&P 500 in the fourth quarter as long as bond yields don’t rise above 5%. The index closed around 4,373 on Monday.
The poll of 259 participants was conducted from Oct. 6 to Oct. 12. Other findings include:
- The most crowded trades are long big tech, short China equities and long Japan stocks
- One in three investors see US/European Union commercial real estate as the most likely source for a credit event
- Poll showed a bounce in optimism for China’s growth outlook
- Fund manager allocation to UK equities fell to a net 25% underweight
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