Bank of America Survey ‘Screams’ Market Capitulation in 2023, Experts Warn Worst Is Yet to Come

Traders work on the floor of the New York Stock Exchange during afternoon trading, in New York City, on Sept. 13, 2022. (Michael M. Santiago/Getty Images)

Strategists at Bank of America (BoA) have warned about stocks seeing a capitulation—a massive surge in selling pressure in a falling market that often leads to a dramatic decline in prices—this year.

A survey of global fund managers found that their sentiment “screams macro capitulation, investor capitulation, start of policy capitulation,” BoA strategists said in a recent note, according to Bloomberg. Stocks are only expected to bottom out in the first half of 2023 once the Federal Reserve changes its current stance of raising interest rates. A rally might follow subsequently.

The survey included 326 fund managers who collectively manage $971 billion. Bloomberg reported that nearly a record number of respondents are expecting the economy to be weaker in the next 12 months.

“While the stock market was immune to the bleak sentiment till last month, it has started to better reflect investors’ pessimism,” the BoA note said.

Liquidity in the market has “deteriorated significantly,” with investors carrying 6.3 percent of their portfolios in cash, the highest level in more than two decades. A net 49 percent were found to be underweight equities.

Sixty-eight percent of respondents said the U.S. dollar is being overvalued, and 83 percent expect global profits to worsen in the next 12 months. A net 91 percent do not see global corporate profits rising to 10 percent or more in 2023, which is the most since the global financial crisis.

In an interview with Bloomberg in September, Jeremy Grantham, co-founder of asset management firm Grantham, Mayo, Van Otterloo & Co. (GMO), warned that the stock market is currently in the midst of a bubble and that the worst is yet to come. The S&P 500 index is down by over 21 percent year-to-date as of Oct. 18.

Recession, Struggling Consumers

BoA’s warning comes as economic data is sending distress signals. In an Oct. 10 interview with CNBC, JPMorgan Chase CEO Jamie Dimon warned that the United States is soon going to slip into a recession.

“Europe is already in recession … and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said, citing elevated inflation rates, high interest rates, and the uncertainty from the Russia–Ukraine conflict.

Dimon is expecting the S&P 500 to fall by “another easy 20 percent,” with the fall being “much more painful.”

Meanwhile, American citizens are struggling to pay their bills due to inflation affecting their finances. A Sept. 23 report from BoA revealed that 25 percent of households making below $50,000 per year missed a payment or made a late payment on their utility bills.

As consumers struggle to pay for their daily necessities, they could reduce discretionary spending, which would be negative for the economy. The United States registered two consecutive quarters of negative GDP growth in the first half of 2022.