Bank of America clients have the highest level of cash deposits in two decades

(Bloomberg) – Investors are raising cash and pointing to a steady decline in the stock market as the global growth outlook plunges to an all-time low, according to a Bank of America Corporation fund manager survey.

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Cash flows among investors peaked in September 2001, the report said, adding that BofA described the results as “extremely bearish”. This month’s survey of investors under 872 billion in management also found that Hawkish central banks were seen as the biggest risk, followed by the global recession, when the recession risk was highest since 2008.

The results make for a horrific reading for global equities, which have already suffered the longest weekly losing streak since the global financial crisis as central banks shut down financial taps during stubbornly high inflation. Although equities have seen a small rebound since Friday as valuations have become more attractive, strategists, including Michael Wilson at Morgan Stanley, say more losses are ahead.

In a BofA report, strategist Michael Hartnett said that investors believe that stocks are prone to an upcoming bear market rally, but have not yet reached the final lows. With further rate hikes expected from the Federal Reserve, the market is still not in “complete surrender,” Harnet wrote in a note.

Fears of a recession have downplayed Ukraine’s inflation and the risk of war, the survey showed. Bearishness is enough to trigger BofA’s own buy signal, which is an inverse indicator for identifying entry points into equity. Strategists such as Kate Moore of BlackRock Inc. and Marco Kolanovich of JPMorgan Chase & Co. also suggest that concerns about the impending recession are overblown.

The BofA survey further showed that technology stocks are in the biggest “short” position since 2006. Frothy Tech shares have been particularly penalized in recent sales amid concerns about future earnings as prices rise. On Tuesday, Nasdaq Futures jumped 2.4% before standing at 1.7% at 8:50 a.m. in New York, setting up tech shares for a rebound.

Overall, investors have very long cash, product, healthcare and consumer major, and very short technology, equity, Europe and emerging markets.

Other results from the May survey:

  • Investors are now expecting a 7.9 Fed rate hike in this tough cycle, compared to 7.4 in April.

  • Fund managers have the lowest weighted equity since May 2020; Net 13% vs. 6% overweight last month

  • Investors position with utility, staples, combined net 43% overweight in healthcare has become the most defensive since May 2020

  • Financial risk is seen as the biggest potential risk for financial market stability, surpassing geopolitical risk.

  • Fed ‘put’ for S&P 500 is seen at 3,529, which is about 12% below current level.

  • Most volatile trades: Long Oil / Commodities (28%), Small US Treasury (25%), Long Tech Stock (14%), Long Bitcoin (8%), Long ESG (7%), Small China Stock (7%) ) And long cash (4%)

(Paragraph 6 updates US Futures)

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