Investors grow bearish, hoard cash, and fear a hard landing: BofA survey.
Investors Turn Bearish as Economic Concerns Rise
According to the latest Bank of America (BofA) global fund manager survey, investors are becoming increasingly bearish, with more individuals flocking to cash and a growing number predicting an economic “hard landing”.
The October survey, which included 225 fund managers overseeing $664 billion, revealed a decline in overall investor sentiment.
“Sentiment remains bearish,” stated the analysts in the report, highlighting that BofA’s comprehensive measure of sentiment, based on cash positions, equity allocation, and economic growth expectations, dropped from 2.2 in September to 1.7 in October.
Related Stories
- Investors Avoid Utility Stocks in 2023 – 10/17/2023
- Investor Demand for US Bonds Weakens, Signaling Fear for America’s Fiscal Health – 10/17/2023
Investors have increased their cash levels to the highest allocation since July, from 4.9 percent to 5.3 percent.
While a soft landing for the economy remains the base case, expectations for a hard landing have risen from 21 percent in September to 30 percent in October.
Investors identified the biggest “tail risk” as high inflation keeping central banks hawkish (31 percent), followed by deterioration in the geopolitical situation (23 percent), and a recession/hard landing for the economy (21 percent).
The survey follows reports indicating weakening consumer strength, and JPMorgan CEO Jamie Dimon’s warning of the “most dangerous time” in decades due to various factors, including the Israel–Hamas war.
‘Best Bullish Shout’: Recession Plus Rate Cuts
BofA strategist Michael Hartnett suggests that a recession and interest-rate cuts by the Federal Reserve would be the “best bullish shout” for investors, signaling them to “sell cash” and ignite a broader stock market rally.
Meanwhile, Wall Street’s main indexes opened lower on Tuesday as hotter-than-expected retail sales data stoked inflation worries and fears of prolonged higher interest rates by the Fed.
Retail sales rose 0.7 percent month over month in September, double the consensus estimates, according to advance data released by the Commerce Department.
The Dow Jones Industrial Average fell 114.70 points, or 0.34 percent, at the open to 33,869.84.
The benchmark S&P 500 Index opened lower by 28.40 points, or 0.65 percent, at 4,345.23, while the Nasdaq Composite dropped 148.12 points, or 1.09 percent, to 13,419.87 at the opening bell.
“Good news is bad news, that’s the key,” said Peter Tuz, president of Chase Investment Counsel, explaining the market’s reaction to the solid retail sales number.
Adjusted for inflation, retail sales fell 0.7 percent year over year in September, marking the 11th consecutive year-over-year drop.
Economist Peter Schiff argues that inflation, rather than stronger economic growth, is driving retail sales higher, indicating that the Fed has lost the inflation fight.
Consumer confidence has also taken a hit, with the University of Michigan’s consumer sentiment survey showing a 7 percent plunge in October.
Amidst the Israel-Hamas war, Bear Traps Report founder Larry McDonald warns of the economic fallout, emphasizing the inflationary impact of wars and predicting a potential surge in oil prices.
Oil in Focus
Oil prices have been rising due to the conflict in the Middle East, with Brent and WTI crude futures increasing on Tuesday.
Last week, Brent saw its biggest weekly gain since February, rising 7.5 percent.
OPEC+ has reduced crude output to maintain price stability, while the Biden administration seeks ways to boost oil supply and combat high inflation.
However, with global oil consumption expected to reach record levels, Saudi Aramco’s CEO stated that the company could increase production if necessary.
What factors are contributing to investors’ concerns about the global economy?
Nflation fears and added to concerns about the economic recovery. The S&P 500 fell 0.67 percent, the Dow Jones Industrial Average dropped 0.66 percent, and the Nasdaq Composite lost 0.75 percent.
Investors are growing increasingly worried about the state of the global economy, with ongoing supply chain disruptions, rising inflation, and geopolitical tensions all contributing to their pessimism. The survey reveals that 63 percent of investors now believe the global economy is in the late cycle, while only 5 percent believe it is in the early cycle.
Furthermore, concerns about a potential recession have led investors to diversify their portfolios and reduce their exposure to equities. The survey shows that equities are now seen as the most overvalued asset class since the financial crisis, with 57 percent of investors considering them overvalued.
Geoffrey Yu, BofA’s head of UK investment office, explains that “investors are worried about both the uncertainty regarding the future path of the pandemic and the potential impact of higher interest rates on equities”. He adds that “the sharp rise in inflation expectations has caught most investors by surprise and has led to a rapid reassessment of the global growth outlook”.
Despite the rising concerns, some investors are still finding opportunities amid the uncertainty. According to the survey, the top three most crowded trades cited by fund managers are long technology, short commodities, and short dollar. This suggests that despite the bearish sentiment, investors are still betting on the resiliency of the tech sector and hedging against potential inflation pressures.
Looking ahead, it remains to be seen how investors will navigate the current economic landscape. While some may choose to adopt a more defensive strategy and increase their cash holdings, others may see the market volatility as an opportunity for long-term investments. Ultimately, the key factor that will drive investor sentiment and decision-making is the path of the global economy, particularly in relation to inflation and interest rates.
As economic concerns continue to rise, it is important for investors to stay informed and adjust their strategies accordingly. By closely monitoring market developments and staying knowledgeable about the factors affecting the global economy, investors can make well-informed decisions that align with their long-term financial goals.
" Conservative News Daily does not always share or support the views and opinions expressed here; they are just those of the writer."
