Topline
Investor sentiment tanked to its lowest level of 2023 this month, according to a Bank of America survey of large fund managers released Tuesday, revealing the lingering effects of a stalling stock market amid a sour macroeconomic backdrop – and growing worries over a potential threat out of Washington.
Key Facts
The proportion of investors who expect the economy to grow stronger over the next 12 months (65%) sank to its lowest rate since late last year, the poll of 289 managers overseeing $735 billion in assets found, contributing to the group’s lowest appetite for risk since November and lowest net optimism of 2023.
The survey also found managers hit their highest relative exposure to bonds since March 2009 last month, while cash allocation hit a six-month high, both signs of investors chasing safety over high growth.
May has been a poor month for stocks already, with the Dow Jones Industrial Average down more than 2%, wiping out its gains earlier this spring.
Contributing to the pessimistic shift were growing concerns about what the ongoing stalemate over the federal government’s debt ceiling could mean for the broader economy: Just 71% of managers believe the U.S. will wholly avoid a default, down from 80% the month prior, while 8% of respondents said they now consider the debt crisis the biggest tailwind for investors to consider, adding onto long-looming worries about high inflation, monetary policy and geopolitical instability.
Key Background
Major stock indexes suffered their biggest losses in over a decade last year as a variety of factors weighed on the economy, most notably rocked by the nearly unprecedented jump in interest rates, the largest war in Europe since World War II and the turmoil’s effect on commodity prices. However, stocks have rallied in 2023, with the S&P 500 up 8% year-to-date, proving resilient even amid March’s banking crisis that knocked out a rash of large lenders. A handful of mega-cap technology stocks like Apple and Microsoft have accounted for nearly all gains. About 30% of fund managers told Bank of America they believe long trades on big tech stocks are the most crowded trades.
What To Watch For
The U.S. could fail to repay its debts as soon as June 1, according to Treasury Secretary Janet Yellen, setting up what could be a drag on stock prices in the near-term, experts say.
Tangent
It’s not just high-profile money managers who are losing faith. A survey released last week found optimism among small business owners fell to its lowest level in more than a decade, while a Gallup poll out last Thursday revealed Americans view stocks as the best long-term investment at their lowest rate since 2012.
Looming Recession For Small Businesses? Optimism Index Hits 10-Year Low (Forbes)
Stocks Are ‘Stuck’ Amid Debt Limit Crisis — But These Investments May Be Best Amid The Turbulence (Forbes)
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