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Professional investors are growing increasingly gloomy about the future, with the majority now predicting that stocks will fall into a bear market this year and the US economy will be plagued by stagflation—meaning high inflation and slow economic growth—according to Bank of America’s latest Global Fund Manager Survey.
Most investors surveyed by Bank of America predict “permanent” inflation and a bear market.
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Investor sentiment is growing increasingly bearish, with expectations for global economic growth plunging to their lowest level since the collapse of Lehman Brothers during the Great Financial Crisis of 2008, according to Bank of America’s monthly survey of roughly 300 respondents managing a collective $1 trillion in assets .
Concerns over inflation, which had appeared to be abating earlier this year, came roaring back in March, with over 60% of investors predicting the US economy will take a hit from stagflation—more than double the amount who said so last month.
With surging inflation and geopolitical uncertainty from Russia’s invasion of Ukraine dragging the US stock market into correction territory this year, fund managers are now holding more cash, at a rate not seen since April 2020, when pandemic lockdowns plunged the economy into a short recession.
The majority of professional investors see rising recession risks ahead once more, with 60% predicting a bear market in 2022 and over 50% expecting that high inflation will be “permanent.”
Markets historically don’t do well in periods of stagflation: When the US economy faced stagflation toward the end of Richard Nixon’s presidency, the S&P 500 fell roughly 17% and 30% in 1973 and 1974, respectively.
Despite the current uncertainty in markets, “investors should remind themselves not to become their portfolio’s worst enemy and let emotions rule their decision making,” says Sam Stovall, chief investment strategist at CFRA, who argues that there are still plenty of opportunities in the form of high quality and high dividend stocks.