Topline
Despite growing signs the worst of inflation may be over for now, fund managers around the world are increasingly worried a recession is likely over the next 12 months as the likelihood increases that prices keep surging even as the economy cools down—bad news for the U.S. but potentially worse for other countries, particularly in Europe.
Reflecting the bearishness, investor allocations to technology stocks, which have suffered immensely … [+]
Key Facts
According to Bank of America’s latest survey, 77% of fund managers say a global recession is likely over the next year—the most since a Covid-era high of roughly 90% in April 2020 as investor allocations to cash remain well above the long-term average of 4.9%, at 6.2%.
About 92% of fund managers surveyed, comprising 309 panelists with $854 billion in assets under management, predict the economy next year will be marked by stagflation, or below-average growth and above-average inflation—a so-called worst-case scenario for markets as it could force the Federal Reserve to further hamper growth with additional interest rate hikes.
Reflecting the bearishness, investor allocations to technology stocks, which have suffered immensely this year, have fallen to the lowest level since the Great Recession this month, and a record 91% of investors view monetary risk (characterized by higher rates or unstable foreign exchange) as higher than normal.
Asked what the biggest risk to the economy is, 32% of fund managers said inflation staying high, followed by geopolitical situations worsening between Russia and Ukraine or China and Taiwan (18%), central banks remaining hawkish (18%) and the likelihood of a deep global recession (18%).
The survey came on the same day the producer price index, a forward-looking indicator that measures inflation among producers, showed prices rose 0.2% in October, roughly half the 0.4% reading economists were expecting in a promising sign for consumer prices, which themselves rose at the slowest pace since January last month.
Tangent
Though a growing number of economists are starting to believe a recession is in the cards domestically, many think it could be relatively mild compared to elsewhere in the world. According to Bank of America’s survey, fund managers were most bearish on stocks in the United Kingdom and the euro zone, and the least bearish in the United States. Meanwhile, Morgan Stanley in a weekend report predicted the U.S. economy “just skirts” a recession next year, but said job growth will slow “meaningfully” as the unemployment rate continues to rise.
Key Background
Last month’s inflation data, which showed consumer prices rose 7.7% (compared to a 9.1% peak in June), was a promising sign for consumers as Fed officials gauge when to hit the brakes on their aggressive tightening campaign, which has already pummeled the housing and stock markets. However, despite the one-month reprieve, many economists cautioned against being overly optimistic. “If this constitutes improvement, we’ve set a very low bar,” says Bankrate chief financial analyst Greg McBride, adding the “pervasiveness” of inflation “remains problematic,” particularly since shelter, food and energy prices—“are still seeing large and consistent increases.”
Further Reading
Labor Market Added 261,000 Jobs In October As Unemployment Climbed To 3.7% (Forbes)
Source: https://www.forbes.com/sites/jonathanponciano/2022/11/15/recession-fears-hit-new-high-even-as-inflation-slows-heres-what-fund-managers-predict-for-2023/