Investors Remain Cautious Despite Equity Market Rally

Equity markets have been on a relentless march higher as inflation cools, but investors remain unconvinced the broad rally will last, according to Bank of America’s Global Fund Manager survey.[0]

The survey, which canvassed 262 fund managers with US$763 billion under management, showed that most investors still see stagflation as the most likely macro backdrop in the next 12 months, with 83% expecting below-trend growth and above-trend inflation.[0]

Exposure to emerging-market stocks has jumped, with the 3-month rise in allocation being the most on record.[1] Additionally, investors are now underweight defensives versus cyclicals for the first time since April 2022.[1]

Biggest tail risks are inflation remaining high, worsening geopolitics, deep global recession, staunchly hawkish central banks and a systemic credit event.[2] About 68% of participants expect China reopening to have an inflationary impact.[2]

Strategist Michael Hartnett stated that positioning is not heavy enough for stock prices to decline at present.[3] In comparison to 52 per cent in September, only 31 per cent of investors are now underweighted in equities, however, that is still higher than the usual.[3] Meanwhile, allocations to cash eased this month and are now at levels seen just before the start of the war in Ukraine last February.[3]

The most crowded trades are long China equities, long IG bonds, long U.S. dollar, long U.S. Treasuries, long environmental, social and corporate governance assets, long oil and long EM bonds.[3]

Bank of America’s analysts have stated today that investors are no longer as pessimistic as they were in February of last year, yet they still lack the optimism to set off a selling trigger.[1] Sentiment on a macro level is still pessimistic, however, it is not as pessimistic as it was prior to the conflict in Ukraine.[4] The chances of a recession occurring have decreased to 24% this month, down from 27% in January, the lowest it has been since June 2022.[5]

Overall, the survey highlights investors’ cautious optimism in the face of lingering macroeconomic uncertainty. Despite the strong equity market rally, a majority of investors remain bearish, with no indication of them turning bullish anytime soon. As such, investors should maintain a cautious approach and remain mindful of the potential tail risks that could derail the markets.

0. “Investors not convinced that stock market rally will last: BoA survey” Markets Insider, 14 Feb. 2023,

1. “Investor pessimism hits 12-month low in February, BofA says” ShareCast, 14 Feb. 2023,–12329574.html

2. “BofA: Managers less pessimistic about global economy” Pensions & Investments, 14 Feb. 2023,

3. “Investors don’t expect stock rally to last despite recession threat receding: Bank of America survey” Financial Post, 14 Feb. 2023,

4. “Sharp drop in investors predicting recession, reports Bank of America” IR Magazine, 14 Feb. 2023,

5. “Investor pessimism lowest in 12 months – BofA’s survey By” Canada, 14 Feb. 2023,–bofas-survey-432SI-2902335