Investors have the largest “sold” position in stocks since 2009, BofA says

By Sagarika Jaisinghani*

Investors’ allocation to equities compared to fixed-income securities has fallen to its lowest level since the global financial crisis as concerns about a recession mount, according to Bank of America’s (BofA) global survey of fund managers.

In this year’s most pessimistic survey – the first after the banking turmoil rocked markets last month – investors indicated they are more sold on equities and that fears of a credit crunch have pushed their allocation of fixed-income securities to an “overweight” (above market average) position of 10% – the highest since March 2009.

63% of participants expect a weaker economy, the most pessimistic reading since December 2022.

Still, the pessimistic turn in sentiment is a contrarian signal for risk assets, strategist Michael Hartnett wrote in the report.

He said that if the “consensus desire for recession” is not satisfied in the second quarter, the “painful deal” would be a rise in bond yields and bank stocks.

Hartnett correctly predicted last year’s stock market crash, warning that growth fears would fuel an exodus from stocks.

US stocks rebounded from last month’s lows, triggered by the collapse of some regional US banks, including Silicon Valley Bank.

Still, the rally has moderated this month as data shows a slowdown in the labor market, fueling concerns that the economy could contract later this year.

A credit crunch and global recession are seen as the biggest tail risks for markets, followed by high inflation that keeps central banks hawkish.

A systemic credit event and worsening geopolitics are also among the risks, according to the survey, conducted April 6-13 and with 249 participants who total US$641 billion in assets under management.

*With reporting by Michael Msika

With information from Bloomberg