Investors are “no longer apocalyptically bearish,” says Bank of America’s (BofA) Chief Investment Strategist, Michael Hartnett, in the monthly survey of global fund managers on Aug. 17.
BofA polled 284 investors overseeing $836 billion in assets between Aug. 5–11, who said they had cut back a net underweight position in equities to minus 26 percent, a big rebound from the minus 44 percent in July, the lowest level recorded since the 2008 global financial crisis.
Global growth and profit expectations have rebounded from an all-time low in July.
At least 88 percent of participants in the survey now expect lower inflation in the next 12 months due to the latest inflation report, which saw rates slow to 8.5 percent in July from 9.1 in June.
The hopeful speculation that inflation has reached its peak has led to optimism that the Federal Reserve will slow down the pace of its interest rate hikes over the next few quarters, in time to avoid a recession.
However, those surveyed believe that the Fed will change course this year only if the Personal Consumption Expenditures price index drops to below 4 percent, well under where it is now.
U.S. stocks have been rallying in the past two months, after taking a beating in the first half of the year, due to a better-than-expected corporate earnings season.
Wall Street has been up about 12 percent in the last month, but remains down around 10 percent compared with the same time last year.
The Nasdaq 100 rose 23 percent after a low in mid-June as its rate-sensitive growth stocks led the charge in the market with many of the traders surveyed expecting the trend to hold.
BofA reported that August saw a surge in U.S. stocks, technology, and consumer shares, while investors sold out of defensive stocks, such as utilities, consumer staples, and UK equities.
Despite the uptick in investor sentiment, BofA said that its Bull/Bear indicator remained at “max bearish” with a reading of 0.0, suggesting no immediate reversal of the bear market rally.
“Sentiment remains bearish, but no longer apocalyptically bearish as hopes rise that inflation and rates shocks end in coming quarters,” said Hartnett, adding that BofA strategists “remain patient bears.”
For the first time since August 2020, survey participants expect growth stocks to outperform cheaper, or so-called value stocks, over the next 12 months.
BofA also reported that the share of uninvested cash in portfolios meanwhile dropped to 5.7 percent from 6.1 percent in July, but still remained “very high,” well above the long-term average of 4.8 percent.
Fears of economic slowdown are continuing to rise, with 58 percent of investors anticipating a global economic recession in 2023, up from 47 percent last month, the highest recorded since May 2020.
Investors say that persistently high inflation remains the biggest tail risk, followed by a global recession, hawkish central bank policies and systemic credit events.
Reuters has contributed to this report.