‘Super bearish’ fund managers flee stocks at record rate

Bank of America’s September fund manager survey paints a bleak outlook for markets and economies. 

Professional investors are extremely worried about the stock market and now have a record underweight to shares.

This is according to Bank of America’s September survey of investors with nearly $700 billion (£605 billion) under management.

Sentiment among investors buying shares is even lower than April 2020, when the pandemic struck, and October 2008 during the financial crisis. There is also a record low share of investors taking higher risk than normal.

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Within shares, investors are most optimistic on “defensive” companies, such as utilities and healthcare.

Another popular move is to buy US dollars. The dollar is up 17% against the pound over the past 12 months as part of a flight to the perceived safety of the global reserve currency amid high inflation and geopolitical tension. Long oil and commodities is the next most-popular trade.

The biggest worry for investors is that inflation stays high for too long, which could then lead to an overreaction from central banks that could harm economies even more.

A dire outlook for the economy is driving investors away from the stock market. Around 70% of respondents said they expected a weaker economy over the next 12 months.

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This is expected to feed through to company profits, with 92% saying they expect profits to decline next year.

The weak outlook has prompted investors to turn to cash, with average cash balances now at 6.1%, compared with the long-term average of 4.8%.

One spot of good news is that 80% of respondents expect lower inflation globally in the next 12 months compared with today, suggesting that a global inflation rate of 9.3% in August was the peak.

But all this bearishness could present a buying opportunity for those willing to go against the herd. Bank of America says that investors should buy stocks when cash levels go above 5%, and sell them when they go below 4%.

Its current “bull & bear” reading is 0.1, just above maximum bearishness of 0. It says that when the reading is below 2, it is a buy signal, and when it hits at least 8 (out of 10) then it is a sell signal.

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The bank said given the ongoing bearish sentiment, if there was good economic data then the US stock market could rise about 10%, with the S&P 500 index hitting 4,300 points before falling again. The bank adds it is “fundamentally and patiently bearish.”

Global shares have fallen 4% this year in sterling terms, and 18% in dollar terms.