Full capitulation: Fund managers have never been this pessimistic on growth or profits

Full capitulation: Fund managers have never been this pessimistic on growth or profits

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Fund manager pessimism has never been greater, according to a fresh monthly survey showing both attitudes and allocations at recessionary levels.

Bank of America’s monthly poll of global fund managers, released Tuesday, showed all-time lows in both the percent expecting a stronger economy and those that expect profits to improve. The survey series dates back to 1994.

Optimism is worse than during the 2008 financial crisis, and profit expectations are worse than they were both during the initial outbreak of COVID-19 and the collapse of Lehman Brothers.

(One caveat is that these polls, similar to that of purchasing managers, measure sentiment and not magnitude.)

Cash levels were the highest since the 9/11 terror attacks, and allocations to equity were the lowest since Lehman. Also of note, the relative allocation of stocks vs. bonds fell to the lowest since the financial crisis.

Fund managers said the most crowded trades were long the U.S. dollar
long oil
and commodities, and long ESG assets, while the biggest tail risks were that inflation stays higher, global recession and hawkish central banks.

The S&P 500
has slumped 20% this year, as more speculative assets such as tech stocks and cryptocurrencies have fared worse.

The fund managers are expecting another 150 basis points of Fed rate hikes, and given a menu of options, don’t expect a pivot until the PCE price index falls below 4%. The most recent reading of the core PCE price index was 4.7%.

But investors no longer expect higher bond yields, and long-term rate expectations are at 3-year lows.

The survey was conducted between July 8 and July 15 of 293 managers managing $800 billion in assets.

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