No big low in stocks before big high in yields & inflation

Mumbai: A survey of global fund managers by Bank of America (BofA) Securities showed sentiment on Wall Street is dire but no ‘big low’ in stocks are likely before ‘big high’ in bond yields and inflation. That will require ‘uber-hawkish’ interest rate increases by the US Federal Reserve in June and July, said the study, which was concluded before the four-decade-high US consumer inflation data on Friday.

The BofA survey said optimism over global growth is at an all-time low, stagflation fear is the highest since June 2008 and the profit outlook is the worst since September 2008 .

“Net % of FMS (Fund Manager Survey) investors expecting a stronger economy fell to -73%, lowest since 1994,” said BofA. “Inflation will nonetheless remain high relative to history… so by far and away the most popular description of what the economic backdrop will be in the next 12 months is “stagflation”…83% (up from 77%), highest level since Jun’08.”

The survey showed investors are bullish on cash, healthcare, commodities and energy, while bearish on bonds, consumer discretionary, utilities, and equities.

“FMS (Fund Manager Survey) investors are the most underweight equities since May’20 at a net 15% underweight (vs net 13% overweight in May),” BofA said.