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Investor growth and profit expectations have reached record lows as economic outlooks decline, according to a July study by Bank of America’s Global Fund Manager.
A carefully monitored BOA survey released on July 19 surveyed 259 investors who oversee $ 722 billion in assets. The study found that optimism has fallen sharply, reducing risk assets to levels not seen since the 2008 global financial crisis.
Approximately 58% of fund managers say they are taking lower-than-normal risks at this time.
Inflation is expected to fall, but the outlook for future corporate profits has reached 90%, with the view that stagflation will continue for the foreseeable future.
Studies show that the threat of a recession has reached its highest level since May 2020, the time of the pandemic.
According to the data, global economic growth is chilling rapidly due to the surge in inflation and the rise in interest rates to control it.
Inflation may be nearing its peak in the United States, but sentiment is risky and curtailed as the economy continues to stagnate.
Maximum “tail risk”
Fund managers expect the Federal Reserve to raise basis points by 150 on borrowing costs over the next decade, but expect the PCE price index to peak and pivot to below 4%.
The core PCE price index is currently 4.7% in the latest readings.
Participants said the biggest “tail risk” was high inflation, over-action by central banks working hard to reduce price pressures, and the subsequent global recession.
Investors have become bullish on cash and bearish on equities, with the portfolio’s cash share exceeding 6%, the highest since 2001.
Meanwhile, the allocation of investment in equities plummeted to a level not seen in October 2008 during the major financial crisis due to the “pessimistic level of investor pessimism.”
However, research shows that the fact that investors’ sentiment is very low at this point could prepare the market for a bailout rally in the coming weeks.
BOA strategists reported that custom market indicators remain “maximum bearish.” This indicates that a short-term rise may be seen.
Michael Hartnett, Chief Investment Strategist at Bank of America, said:
Low interest rates in 2023?
Polls show that most investors are betting that inflation will fall, or interest rates, will fall next year.
The findings also highlight the escape from risky assets this year, which pushed the S & P 500 index into the bear market and led European equities to the worst six-month decline since 2008.
Approximately 79% of respondents expect an economic downturn next year, the worst number since the survey began in 1995.
Investors are the most bearish in the euro and Japan’s equity region, but bullish in the dollar and sterling zones.
In addition to huge cash positions, investors have long been interested in commodities such as defense equities and oil, taking short positions in equities, European assets and the US Treasury, especially discretionary equities.
The impending energy crisis in Europe is also increasing uncertainty.
But while investors no longer expect bond yields to rise, long-term interest rate expectations are at their lowest levels in three years.
Polls took place from July 8th to 15th, shortly after Wall Street recorded the worst first-half decline since 1970, a decline of almost 20 percent from the beginning of the year.
Reuters contributed to this report.
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Brian S. Jung is from New York City and is a resident with a background in the political and legal industry. He graduated from Binghamton University.
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