Investor confidence when it comes to global growth just fell to its lowest point in almost 30 years.
According to the latest fund manager survey by Bank of America, 73 percent of managers are pessimistic about global growth, the highest since the survey began in 1994. The fear of stagflation — that is, a combination of recession and inflation — rose to the highest level since 2008, with 83 percent of fund managers saying that stagflation will be the most likely economic backdrop for the next 12 months. More than half of asset owners have already been preparing for stagflation, Institutional Investor previously reported.
Bank of America based the results on a survey of 300 fund managers with $834 billion in total assets under management. The survey was conducted between June 3 and June 10.
The bleak investment outlook coincides with the S&P 500’s official drop into bear market territory. On Monday, the popular benchmark plunged nearly 4 percent, marking a 20 percent drop from the recent high in January. According to BoA, it is the twentieth bear market in the past 140 years.
A natural response to the market downturn is to deploy a more defensive investment strategy. According to the survey, 44 percent of fund managers are encouraging companies to “play it safe” by strengthening their balance sheets instead of expanding capital expenditures or buying back shares, up from 41 percent in January 2021. The thought, of course, is that companies in good financial health are expected to withstand macroeconomic shocks better than those without.
A hawkish central bank also plays an important role in the surveyed managers’ investment outlook. According to BoA, 79 percent of fund managers expect higher short-term rates. Although historical data suggests that rate hikes are unlikely to have a significant impact on the stock market, contractionary monetary policies have become the top concern for fund managers, with 32 percent saying it’s the biggest “tail risk.” David Kelly, chief global strategist and head of the global market insights strategy team at J.P. Morgan Asset Management, even wrote in a note this week that there is 50 percent of chance that the Fed will raise rates by 75 basis points — instead of the current consensus of 50 basis points — at the upcoming Fed meeting.
But the investment landscape for the rest of the year isn’t completely bleak. According to BoA, the silver lining might come in mid-October. “History is no guide to future performance, but if it were, today’s bear market would end on October 19, 2022, with the S&P 500 at 3000,” the survey said. Part of that has to do with investors’ belief in the Fed’s ability to curb inflation. According to BoA, more investors than at any time since the Global Financial Crisis expect the global consumer confidence index to come down next year.