Investor sentiment regarding economic prospects is the most negative in three decades, yet fund managers' pessimism isn't fully reflected in their asset allocation which could mean more losses for US stocks, a Bank of America Corp. survey shows.
Fund managers are extremely gloomy, with 82% of respondents to BofA's monthly survey expecting the global economy to weaken. Consequently, a record number intend to reduce exposure to US equities, according to the poll.
Fund mangers are “max bearish on macro, not quite max bearish on the market,” strategists led by Michael Hartnett wrote in a note. “Peak fear” is not yet reflected in cash allocations, which currently stands at 4.8% of assets and would typically need to rise to 6%, they added.
High uncertainty surrounding US trade policy and a spike in financial-market volatility has unsettled stock investors. Respondents are a net 36% underweight US stocks in April, down from 17% overweight in February, the biggest ever two-month drop.
US equities have underperformed this year amid concern that President Donald Trump's trade war will hurt growth, with 42% of survey respondents saying that a recession is likely in the world's biggest economy.
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The S&P 500 has bounced from this month's low but its year-to-date 8.1% drop lags European and Chinese benchmarks. BofA strategists expect the April lows to hold in the near-term and warned that “big upside needs big tariff easing, big Fed rate cuts, and/or economic data resilience.”
There were 164 participants with $386 billion in assets under management in the global poll conducted on April 4-10.
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