Bear Sightings On The Rise In Key Survey

“We remain bearish,” BofA’s Michael Hartnett said, in the second bullet point atop the February vintage of the bank’s Global Fund Manager survey.

He went on to suggest investors aren’t assigning high enough odds to a bear market, a recession, credit events or some combination of the three.

That’s not to say survey panelists were sanguine. Far from it. In fact, Hartnett described the poll as “bearish.” Just like him.

Growth expectations deteriorated again, and it looks as though equity allocations might have peaked (figure below). For months, investors were unwilling to abandon stocks despite harboring increasingly dour views on the economy.

Global equity flows are still very robust. In fact, as of last Wednesday, they were running ahead of 2021’s pace, no small feat considering last year was a record by a huge margin.

Not surprisingly considering recent events, respondents to the BofA poll increasingly expect a flatter curve. The net percentage expecting additional flattening is now the highest in 17 years (figure below).

Concerns around growth, reasonably well anchored market-based measures of inflation expectations and intermittent safe-haven bids all argue against any kind of bear steepener, surging inflation notwithstanding. Indeed, surging inflation is now the most compelling argument for the flattener given the read-through for monetary policy.

Speaking of that, respondents identified “monetary risk” as the greatest threat to market stability. At 83%, the net percentage of participants who said monetary risk was elevated registered the highest on record.

Nevertheless, only 12% of investors think a recession is coming in the next year. Similarly, just 3% expect a credit event and only three in 10 see a bear market.

“Investors are bearish but not extremely bearish,” Hartnett said, flagging the cognitive dissonance inherent in the juxtaposition between rising cash levels and longs in cyclical stocks versus bonds.

For the contrarians, he wrote that any “recession scare is best played via long bonds-short commodities [as] just 5% predict T-bills or 30-year Treasurys will be best the performing asset of 2022.”