(Bloomberg) — Investors are fleeing stocks en masse amid the specter of a recession, with allocations to equities at record lows and cash exposure at record highs, a Bank of America Corp. survey showed.
Bloomberg’s Most Read
A historically high 52% of respondents said they are underweight equities, while 62% are overweight cash, according to the bank’s survey of global fund managers, which included 212 participants with $616 billion under management in the week. Until 8 September.
As concerns about the economy mount, the number of investors expecting a recession has reached the highest level since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday. Sentiment is “super bearish,” with the energy crisis weighing further on risk appetite, they said. A net 42% of global investors are underweight European equities, the largest such position on record.
Global stocks have had a roller coaster ride in recent months. Declines have been fueled by fears that central banks will remain hawkish longer and push the economy into recession, while rallies have been fueled by weak investor positioning and optimism around the US inflation peak
Strategists at major banks, including Deutsche Bank AG and JPMorgan Chase & Co., say gloomy investor sentiment, often a contrarian indicator of a stock rally, is likely to drive stocks higher toward the end. of the year.
Bank of America’s Hartnett sees the extent of the slump and better-than-feared macroeconomic data propelling the S&P 500 to 4,300 points, nearly 5% above current levels. But he expects the index to retrace from that level and remains “fundamentally and patiently bearish.”
Stocks will get a first taste of that later today when data on the US consumer price index for August is released. Economists expect the figures to show inflation slowing for a second month, though that probably won’t be enough to prevent the Federal Reserve from making another huge rate hike later this month.
The outlook for corporate earnings is also deteriorating. A net 92% of participants in the Bank of America survey now expect earnings to decline next year, while the number of investors taking higher-than-normal risks has fallen to an all-time low.
Persistently high inflation is seen as the biggest tail risk, followed by aggressive central banks, geopolitics and a global recession. Only 1% of participants see a resurgence of the Covid-19 pandemic as a tail risk.
Other highlights of the survey include:
The most popular trades are long US dollars, long oil and commodities, long ESG assets, short US Treasuries, long growth stocks and long cash.
A net 79% of participants see slower inflation in the next 12 months, while 36% say the Fed will stop raising rates in the second quarter of 2023
Currency risk remains, according to near-record investor turnout, while rates are the most volatile since the global financial crisis.
Europe’s energy crisis is likely to push the regional economy into recession, say nearly 70% of respondents, while fewer believe the announcement of an energy price cap is the most likely outcome.
Relative to the past 10 years, investors are long cash, defensives and energy while they are underweight equities, eurozone, emerging markets and cyclicals.
Most Read Bloomberg Businessweek
©2022 Bloomberg LP