Investors are beginning to hoard cash on recession fears: BofA

Investors are starting to get very nervous about the market’s near-term direction, and it shows in their actions.

“Russia/Ukraine drives fund manager cash levels to highest since April 2020 (COVID), global growth optimism to lowest since Jul’08 (Lehman),” said Michael Hartnett, Bank of America chief investment strategist, in the latest survey of managers from the bank.

The details behind the report are ugly.

Hartnett notes growth expectations among fund managers is at a 14-year low. The majority of those surveyed expect inflation to be “permanent.” As for risks, the Russia-Ukraine war is seen as the number one “tail risk” for markets followed closely by a global recession.

Amid these risks, fund managers took their allocation of cash to 5.9% from 5.3% in the prior month. This was the highest allocation to cash since March 2020.

“Cash levels are rececessionary,” Hartnett points out. A rare bright spot is that investors haven’t totally thrown in the towel on stocks.

“Investors remain overweight stocks, not underweight; equity allocations are not at ‘recessionary’ close-your-eyes-and-buy levels,” Hartnett added.

Markets continue to reflect these multitude of concerns, however.

The Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) are down by about 5% each so far in March, according to Yahoo Finance Plus data. The Nasdaq Composite (^IXIC) is off 6.2% on the month.

Yahoo Finance’s Jared Blikre reports the Dow and S&P 500 are in correction territory and the Nasdaq Composite is mired in a bear market.

From their respective record highs, the Dow is down by 11%, the S&P 500 is down 13.5% and the Nasdaq Composite has shed 22.5%.

“The bond markets is getting very concerned about the growth outlook and growth prospects. That being said, we are seeing nominal yields rise across the board. Not just in the United States, but across the G-7 economies in general which is telling you that I think a lot of traders are worried about persistently high inflation,” said DoubleLine portfolio manager Bill Campbell on Yahoo Finance Live.

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Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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