Heavily bearish sentiment suggests stocks are poised to rally but it’s unlikely to last, according to Bank of America’s (BofA) latest monthly fund manager survey.
Best viewed as a contrarian indicator, the survey confirms sentiment has hit a bearish extreme. Global growth optimism is at an all-time low, while stagflation fears are the highest since August 2008.
Importantly, equity allocations are catching up with bearish macro sentiment. The last time investors were so underweight stocks was May 2020. Allocations to technology shares have hit their lowest level in 16 years.
Managers have cut risk-taking activities to levels unseen since December 2008. Sentiment towards European shares is especially negative, falling to 10-year lows. Cash levels have surged to a 20-year high of 6.1 per cent.
It’s all quite extreme, so little surprise that BofA’s Bull and Bear Indicator has flashed a contrarian buy signal. However, BofA sees any bounce as a temporary bear market rally, saying we are not yet at “full capitulation”.
Additionally, BofA says its Financial Market Stability Risks Index is at record highs – even higher than during 2020’s Covid shock and 2008’s global financial crisis. That’s concerning, and ultimately points to a “further decline” in stock prices.
