Bank of America Survey: Fear of Recession Looms, Investors Take Fewer Risks

NEW YORK, NEW YORK - JULY 13: Traders work on the floor of the New York Stock Exchange dur
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Investors’ fears of a recession are at their highest levels since the 2020 Chinese Coronavirus pandemic, as a net 58 percent of fund managers admitted to taking fewer risks than usual, a Bank of America survey revealed.

Pessimism among investors was also reported to be at “dire” levels not seen since the 2008 Financial crisis, the survey noted.

The survey found that one-third of investors believe inflation is the greatest tail risk, while under a quarter said another recession is the biggest risk, the Financial Times reported, citing the survey.

Other significant tail risk factors that fund managers noted include “hawkish central banks and systemic credit events,” Bloomberg noted. The Russia/Ukraine conflict dropped to number five in tail risk concerns.

Seventy-nine percent of fund managers expect corporate profits to decrease, which is higher than during the pandemic or the 2008 Financial Crisis, the Financial Times noted.

Investors were also recorded to reduce their activity in the stock market but increased their cash holdings to over 20-year highs.

While optimism is low currently, investors expect inflation next year to decrease with interest rates to follow suit, according to the survey.

The market is also at maximum “bearishness,” but that may lead to a rally in the stock market, according to the survey.

Michael Hartnett, chief investment strategist of Bank of America, did warn that the rally will probably be “temporary:”

Any rally is likely to be temporary. The catalyst for a sustained recovery will be a change in monetary policy from the Fed when it sees that Main Street is suffering along with Wall Street. We are still some distance from the kinds of levels on the [US S&P 500 stock index] that would cause policymakers to panic and change course.

The survey was taken from July 8 to July 15 among 259 participants who oversee $722 billion in assets under management.

You can follow Ethan Letkeman on Twitter at @EthanLetkeman.

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