Investors are bearish but no sign of a ‘perfect low’

Fund managers are steering clear of stocks and are especially wary of the world’s biggest market, with allocations to the US falling to 18-year lows

Recent banking woes have spooked investors, Bank of America’s (BofA) latest monthly fund manager survey shows. Economic sentiment has plunged, with the survey registering the most significant decline in optimism since March 2022, following Russia’s invasion of Ukraine.

Recession fears, which had receded in recent months, have spiked higher. Cash levels have also jumped for the first time in five months, although they remain well shy of the “close-your-eyes-and-buy” levels seen at last October’s market bottom.

Fund managers are steering clear of stocks, with allocations now two standard deviations below long-term norms. They’re especially wary of the world’s biggest market, with allocations to the US falling to 18-year lows. Overall, pessimism is at levels seen at multiple major market lows over the last 20 years.

While sentiment and positioning is at a juncture consistent with prior lows, BofA says contrarians shouldn’t be getting excited just yet, however.


Firstly, the percentage of investors expecting a weaker economy in 12 months has soared to the highest level since November. The S&P 500 has been flat over the same period and has “not caught up with the deteriorating macro outlook”, says BofA.

Sentiment aside, other measures like fund flows don’t indicate investor capitulation. BofA’s Bull and Bear Indicator is at 3.5 – that’s neutral territory and well shy of the 2.0 level that triggers a tactical buy signal. A separate market note from BofA’s Michael Hartnett says a “perfect market low” is one characterised by extremely bearish positioning (0 on BofA’s aforementioned indicator), extreme economic pessimism (as measured by a very low ISM manufacturing index reading) and policy panic (rate cuts). March 2023 is not a “perfect low”, so further volatility may be ahead.

Proinsias O'Mahony

Proinsias O'Mahony

Proinsias O’Mahony, a contributor to The Irish Times, writes the weekly Stocktake column