The Global Fund Managers Survey (FMS) by Bank of America is an interesting barometer for the sentiments of some of the biggest institutional players in the market (and which has received frequent attention in the course of our commentary over the past year or so).

In the latest survey, survey respondents indicate that their risk appetite remains depressed and not far from the extreme pessimism of 2022 and comparable to the levels of the 2009 Great Financial Crisis (GFC). A net 29% of survey respondents are “underweight” equities, down from 31% in March. Similarly, the growth expectations worsened to December 2022 levels with a net 63% expecting weaker global growth.

35% of the respondents opine that the Federal Reserve will start cutting rates only in Q1 2024 while 28% expect this process to start a quarter earlier. All in all, market sentiment effectively holds that the next quarter will be a wash.

Other salient points of consensus were:

• 84% of respondents contend that global CPI will be heading lower;

• 58% of respondents predict the prevalence lower short-term rates, which is the highest consensus since November 2008;

• The biggest ‘tail risks’ to the global economy are bank credit crunch & global recession (35%) followed by high inflation that keeps central banks hawkish (34%);

• Cash allocation has remained above the 5.0% tactical « buy » signal since November 2021;

• Fears of a credit crunch has driven bond allocation among these institutional players up by 9 percentage points Month over Month (MoM) to a net 10% Overweight, which is the largest overweight metric since March 2009;

• Survey respondents’ quoted underweight status in equities relative to bonds is now also at levels not seen since the GFC

Now, one key reason why fund managers have reported being “underweight” on equities has been that overall capital allocation has continued to favour holding equities. As of April, the FMS reported that U.S. tech companies are now more than 2 standard deviations away from the performance of the S&P 500.