Wall
Street is getting even more worried about the global economic expansion.
Over
a third of fund managers expect global growth to decelerate in the next year—the
most pessimistic outlook since November 2008, according to a monthly survey by
Bank of America Merrill Lynch.
A
record 85% of investors believe that growth world-wide is in the late stages of
an economic cycle, though it is unclear how long the stages might last.
The
survey took place from Oct. 5 to Oct.11—a period marked by a selloff in
equities, as investors worried that the Federal Reserve would keep raising
interest rates that could dent corporate profits, a big driver of stock-price
gains.
Fund
managers aren’t saying a recession is imminent. It is more of a question of how
much longer they think the global growth story can continue.
“After
an epic run of great returns this year, particularly in the U.S. from both the
economy and earnings, investors are becoming more cautious going into 2019,”
said Michael Hartnett, BAML’s chief investment strategist.
Trade
tensions continued to be a top concern for fund managers, according to the
survey, with 35% of investors saying a potential trade war poses the greatest
risk to markets.
The
monthly survey polls investors who collectively manage $646 billion in assets.
Still,
fund managers don’t see a continuing selloff in U.S. stocks just yet.
The
survey indicated that the yield on the benchmark 10-year Treasury note would
need to hit 3.7%, up from roughly 3.18% Wednesday, for investors to sell equities
and buy bonds.
Investors
also think the S&P 500 would need to fall to 2390—15% below its current
level—to stop the Fed from continuing on its tightening path.
That
level is lower than where the benchmark index has traded for the year.
One
surprise from the survey was that cash levels haven’t surged despite the recent
turbulence in the stock market. This suggests that investors were already
positioned for volatility to snap back in the months before October.
Fund
managers typically increase cash positions during times of volatility if they
are concerned about risk.
The
average cash balance among fund managers remained steady at 5.1% in October,
unchanged from September.
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