• Fund managers are pessimistic
• Tremendous recession and stagflation concerns
• Great skepticism about tech stocks
Supply chain problems after the Corona crisis and the Ukraine war are causing inflation rates to reach new record highs in some cases. Although the currency watchdogs are trying to do this with a strong tightening of the monetary policy to counteract this, but there is a risk that the economy will be stalled as a result. In this environment, the mood on the stock exchanges is very depressed.
Professional investors pessimistic
Investing.com reports, citing a Bank of America survey, that 73 percent of the 272 fund managers surveyed in November fear the global economy will weaken in the next 12 months. How bad the mood is can also be seen from the fact that 77 percent of those surveyed consider a recession to be likely and even 92 percent consider stagflation – ie a below-average weak economy with above-average inflation at the same time – to be possible.
Professional investors have identified persistently high inflation (32 percent), a worsening geopolitical situation (18 percent), continued hawkish central bank monetary policy (18 percent) and a deep global recession (18 percent) as the greatest tail risks.
This is how the fund managers react
Furthermore, 77 percent of investors fear that company results will deteriorate in the next twelve months. Against this background, interest in equities remains subdued. Instead, the fund managers surveyed prefer to rely on a record-high cash ratio of 6.2 percent.
If you invest in equities, then in defensive stocks. In November there was a strong rotation from utilities and tech companies to industrials and banks. The fund managers’ allocation to technology stocks is now the lowest it was in 2006. The fact that the technology sector, which was the engine of the bull market in recent years, is now being avoided to such an extent is due to the hawkish monetary policy of the central banks. On the one hand, tech companies are usually more heavily leveraged, so rising interest rates also mean significantly higher financing costs for them. On the other hand, companies are often reluctant to invest in new technologies or software in times of higher interest rates.
No improvement in sight yet
The fund managers do not seem to have any hope of a quick improvement: “Two-thirds of investors expected interest rate cuts during previous ‘big lows’ in the stock market, but in November only a third of respondents expect lower short-term interest rates, so that’s not the point yet.” said Michael Hartnett, Bank of America’s chief investment strategist.
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