Fearing inflation and high interest rates, finance managers around the world are raising cash at levels not seen in two decades.
This is according to a “highly bearish” May survey of global money managers published on Tuesday by a team of Bank of America strategists led by Michael Hartnett. The headline, “If They Can’t Rally Now …” The survey revealed the highest amount of cash for those managers in the immediate aftermath of the September 11, 2001 terrorist attacks in the United States.
The survey showed that investors are now expecting a 7.9 Fed interest rate hike in this tough cycle from April 7.4. And holding up equity allocations. Managers have had the shortest, or bearish, interest rate sensitive technology stocks since August 2006, and the lowest weight in equities since May 2020.
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S&P 500 SPX,
The bear has flirted with the market area – defined as a 20% drop from the recent high. It was down 16.44% until Monday, from a record close of 4796.56 on January 3, although markets were pointing to strong gains for Tuesday.
Nasdaq Composite Comp,
16057.44 was 27% lower than November 19, 2021.
But strategists do not see that the markets have yet to reach a “complete surrender”, with stocks “trending an impending bear rally” and the downtrend not fully reached. This is a serious issue in debate among Wall Street market strategists and analysts. Capitulation occurs when a significant proportion of investors succumb to fear and sell within a short period of time, usually followed by a bounce.
The survey shows further record highs for stagflation expectations at the highest level since August 2008.
Financial risk or hawkish central bank has become the biggest so-called “tail” risk for investors and surpasses geopolitics as the biggest risk for financial market stability.
Where investors have high hopes and money, the chart below shows healthcare and products with cash the most desired at the moment:
And: Bond Investors Concerned About Economic Growth, Morgan Stanley