Investors remain pessimistic about stocks, but their outlook is no longer dire, according to Bank of America Corp.’s latest monthly Global Fund Manager Survey.
The August poll of 284 people managing assets totaling $836 billion reported that investors are “no longer apocalyptically bearish,” thinking that inflation has peaked and interest rate jolts will soon subside. But they do view recession as a distinct possibility, according to the poll.
88% of those surveyed expect inflation to decline in the coming 12 months, strategists led by Michael Hartnett wrote in a note accompanying the August data. The number of investors expecting a global recession rose to a net 58%, the highest since May 2020. Exposure to cash fell to 5.7% but remained well above the long-term average of 4.8%. Also, allocation to stocks increased during the period ending August 11.
Following a corporate earnings season that exceeded expectations, stocks have rallied, fueling hopes that the Federal Reserve will slow the pace of its interest-rate hikes in time to ward off a recession. And, investors expect the upward trend to continue, as the Nasdaq 100 is up 23% since hitting a low point in June. Survey participants said they predict rate-sensitive growth stocks will outperform cheaper stocks in the next year.
JPMorgan Chase & Co. strategists said growth stocks may extend the rebound, though Morgan Stanley’s Michael Wilson said the gains are a pause in the bear market and disappointing earnings could spark another selloff.
Bank of America strategists “remain patient bears,” Hartnett wrote. With their base case calling for rising rates and falling earnings, they would take profits if the S&P 500 exceeded 4,328 points. The Fed would shift direction only if the personal consumption expenditures price index falls below 4%, the survey showed.
High inflation remains the biggest tail risk, followed by a global recession, hawkish central banks, and systemic credit events.