Growth optimism sinks to a record low, says Bank of America survey

Investor fears of stagflation are at the highest since the 2008 financial crisis, while global growth optimism has sunk to a record low, according to Bank of America Corp.’s monthly fund manager survey.

Global profit expectations also dropped to 2008 levels, with BofA strategists noting that prior troughs in earnings expectations occurred during other major Wall Street crises, such as the Lehman Brothers bankruptcy and the bursting of the dotcom bubble. 

BofA’s survey, which included 266 participants with $747 billion under management in the week through June 10, ended before the US inflation data on Friday “shattered” hopes of the Federal Reserve pausing its aggressive cycle of rate hikes, according to strategists led by Michael Hartnett.

“Wall Street sentiment is dire but no big low in stocks before big high in yields and inflation, and the latter requires uber-hawkish Fed hikes in June & July,” Hartnett wrote. 

The results -- including 73% of respondents expecting a weaker economy in the next 12 months, the lowest since the survey started in 1994 -- provide insight into fund manager allocations and sentiment right before the S&P 500 collapsed into a bear market on Monday as surging US inflation fueled fears of sharper Fed action. The index is up slightly in early trading on Tuesday morning.

In terms of positioning, investors are long cash, US dollar, commodities, healthcare, resources, high quality and value stocks, while short positioning dominates bonds, European and emerging-market stocks, tech and consumer shares. 

Hawkish central banks was seen as the biggest tail risk to markets among investors, followed by global recession. Long oil and commodities was the most crowded trade.