The latest monthly global fund manager survey released by Bank of America on Tuesday showed that as economic growth expectations become pessimistic, investors are once again turning bearish and flocking to cash.
This survey was conducted between October 6th and October 12th, with a total of 259 participants who managed assets worth $664 billion.
Bank of America strategists led by Michael Hartnett wrote in a report that the October survey showed a decline in the broadest measure of sentiment based on cash positions, stock allocation, and economic forecasts, while in the summer months, the indicator showed an improvement in investor sentiment.
Strategists say that cash levels have climbed to over 5% of investors' managed assets.
Investors' expectations for economic growth remain pessimistic, with a net 50% of investors predicting a global economic weakness in the next 12 months. Concerns about a hard landing in the economy are intensifying, with the proportion of investors believing that the economy will experience a hard landing rising from 21% in September to a net 30% this month. However, the baseline forecast for most investors is still a soft landing.
About 44% of respondents expect a global recession in the first or second quarter of 2024, up from 36% in September.
Continued disconnect between stock market and economic growth expectations
Hartnett and other analysts stated that "there is a persistent disconnect between the stock market and economic growth expectations
The S&P 500 index rebounded in October after two months of sharp decline due to market concerns about tightening monetary policy and soaring bond yields. Since the beginning of this year, the benchmark index has still risen by 14%, and the current focus has shifted to the financial reporting season. The survey shows that the profit outlook has reached its most optimistic level since February 2022.
The survey results show that most investors still believe that the Federal Reserve has ended its interest rate hike cycle and bond yields will decline over the next 12 months. More than half of the respondents expect a rebound in the stock market in the fourth quarter. In reverse buying signals, the current level of cash allocation usually indicates that the S&P 500 index will rise by 7% in the next six months.
In terms of stock allocation, fund managers remain neutral towards stocks, but in October they switched from European stocks to US stocks at the fastest pace since September 2022. Hartnett stated that the position shows that as long as the bond yield does not exceed 5%, the 4200 point is a solid bottom for the S&P 500 index in the fourth quarter. The index closed at 4373.2 points on Monday.
Other highlights
The survey also showed that the biggest tail risk is that high inflation keeps the central bank hawkish, followed by geopolitical deterioration;
The most crowded trading is to long large technology stocks;
One-third of investors believe that US/EU commercial real estate is the most likely source of credit events;
Optimism about China's economic growth prospects has rebounded.