The once bullish outlook on U.S. stocks has taken a swift turn, as indicated by Bank of America’s recent findings.
The latest Global Fund Manager Survey by Bank of America, encompassing 171 participants, has revealed a significant pullback from U.S. equities. This March survey marks the steepest monthly decline in allocation to these stocks on record, with a 40% reduction in investor allocation compared to the previous month. This dramatic shift comes after a period of historic highs in U.S. stock investments as recently as December.
The team from Bank of America, led by strategist Michael Hartnett, has described this downturn as a “bull crash.” They attribute it to a notable 10% drop in the S&P 500 over the last month, which has spurred investors to pivot towards cash rather than bonds. For investors, the sudden drop might appear as a buying opportunity, but Hartnett’s analysis suggests it is more about correcting an overzealous market sentiment than signaling a clear buying trigger.
Furthermore, the survey highlights an increase in cash allocations from 3.5% to 4.1%—the most significant monthly rise since December 2021. Despite this increase, cash levels are still below the peak levels observed in October 2022, when fears of an impending recession were rife on Wall Street.
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Michael Hartnett points out that current market sentiment is far from the “close-your-eyes-and-buy” stance. Recent examinations by Wall Street strategists offer insight into why this might not be the ideal time to buy the dip. The underlying concerns that initially caused the market dip remain unresolved.
Notably, a majority of 55% of survey respondents see the potential for a trade war to trigger a global recession as a critical risk, a view that hasn’t been as prominent since the pandemic’s onset in April 2020. Although stock prices saw a modest 3% recovery over the past two trading sessions, the trade tensions and economic growth concerns have not visibly eased. Morgan Stanley’s Chief Investment Officer, Mike Wilson, acknowledged the possibility of a temporary rally but cautioned against expecting sustained recovery unless growth impediments are addressed or the Federal Reserve reverts to cutting interest rates.
Looking ahead, the next pivotal moment for investors will be the Federal Reserve’s policy announcement on Wednesday. The market largely anticipates that the Fed will maintain current interest rates. However, investors are poised to glean insights from any indications given by Fed Chair Jerome Powell during his press conference at 2:30 p.m. ET regarding the future trajectory of interest rate adjustments.
The recent downturn in investor sentiment towards U.S. stocks as highlighted by Bank of America underscores the current market’s volatility. Investors remain cautious, balancing between potential trading opportunities and ongoing economic risks. All eyes are on forthcoming policy signals from the Federal Reserve as stakeholders navigate this challenging landscape.
