Sentiment among professional investors remains “uber-bearish”, according to Bank of America’s (BofA) latest monthly fund manager survey. Recession is now the consensus view, with a net 77 per cent expecting a recession over the next year – the most since the Covid high in April 2020.
The percentage of investors who view monetary risk as above normal is the highest on record. Although stocks have rallied lately, sentiment remains poor. Cash allocations have fallen only slightly from last month’s 21-year high. Equity allocations have risen but remain 2.4 standard deviations below their long-term average.
The percentage of investors taking lower-than-normal risk levels is only slightly below the recent record high. Relative to the past decade, investors are long defensive stocks and bonds but underweight euro-zone stocks, with allocations 1.5 standard deviations below normal levels.
Investors are especially wary of technology stocks, with allocations hitting their lowest level since 2006. BofA’s survey is a contrarian indicator, so the fact that sentiment remains so bearish is “manna from heaven” for trading bulls. BofA’s Bull and Bear Indicator says to buy global stocks when it falls below 2.0; currently, it remains at a rock bottom score of zero.
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That said, BofA’s Michael Hartnett still doesn’t think the current rally is sustainable. Stocks can keep going higher for now, but he says traders should “rent” the Federal Reserve pivot, not buy it.
