- Bank of America’s global fund manger survey is a highly regarded bellwether for the stock market.
- The survey took in views from 284 professional investors with $836 billion of assets.
- The bank has laid out the key insights gathered from these experts that you need to know about.
Bank of America’s global fund manger survey is a key bellwether for sentiment in financial markets, and the August iteration is certainly worth paying attention to.
The survey took in views from 284 professional investors with $836 billion of assets under their management.
There were a few standout findings which shine a light on where markets are now, and more importantly where they are likely heading from here.
“Sentiment remains bearish, but no longer apocalyptically bearish as hopes rise that inflation and rates shocks end in the coming quarters,” Bank of America said in the report. It added that the “B of A Bull & Bear Indicator” is still at “max bearish” however.
This is actually positive for stocks as it means they have risen despite very bearish sentiment, and no immediate reversal of the recent rally is expected.
That does not mean markets are out of the woods. Rates will continue to rise for some time and company earnings are likely to come out soft in the next few months.
“We remain patient bears, and would fade the S&P 500 at 4328 as rates up-profits down [is] our base case,” the bank said.
The survey also found a notable increase in risk appetite, with average cash holdings decreasing from 6.1% to 5.7% among the fund managers taking part. This is still high relative to other times in the market cycle though.
The fund managers were also questioned on their expectations for Fed policy and provided some potentially very valuable insight. The consensus among the fund managers is that the Fed will ‘pivot’ back to rate cutting when inflation dips under 4%.
That is double the 2% target, so it gives strength to the view put forward by some that the Fed will back out off its tightening cycle some time before inflation is back at an ideal level.
Turning to where professional investors are putting the money they are charged with taking good care of, a few interesting points jumped out.
The survey found fund managers as a whole are “still long stagflation.” That is to say, a majority expect prices to continue rising while the economy contracts. A highly undesirable mix.
The investments to make to counter this are commodities and defensive stocks, while also holding on to cash, Bank of America said.
Another notable insight is that despite an overall bearish outlook, for some money managers a turning point is approaching. Fund managers have collectively begun to rotate some money back into US stocks, tech and consumer, and out of staples, utilities and UK stocks. This was evidenced by the rally seen in recent weeks.
The investors questioned also said they now expect growth stocks to outperform value over the next 12 months. This is first time they have collectively said this since August 2020, and also points to a sustainable turnaround for stocks as a whole being near.
One final insight from the survey to keep in mind is the investors’ sounding of a warning over the global real estate market, particularly in China. That was the most popular answer to the question of what is the likeliest source of a “systemic credit event.” In other words, a major threat to the financial system and the markets.