For the first time since the financial crisis, corporate leverage is the chief concern for the professional investors who handle Wall Street's largest funds.
A survey of institutional investors show that half of all managers prefer corporations use any extra cash to improve balance sheets instead of spending the money on capital expenditures or buying back shares, according to the January Bank of America Merrill Lynch Fund Managers Survey.
The preference marks a sharp turn in sentiment as respondents for the past couple of years have been pushing companies to put cash to work through capex. That has even taken preference over buybacks, which have been less effective at boosting the broader market as valuations have gotten more expensive.
Debt has emerged as a bigger concern with corporate bonds outstanding now eclipsing the $9 trillion mark. Investors have gotten more concerned over leverage, or the amount of debt companies hold compared to the value of their equity.
A net 48 percent of the market pros surveyed believe corporate balance sheets are overlevered.
Several prominent investors have joined the chorus of worry about corporate debt. Most recently, Jeffrey Gundlach of DoubleLine Capital warned of "an ocean of debt" that could cause economic and market problems.
This is the first time since 2009, or just after the financial crisis, that investors have listed leverage as their principal concern. Companies spent the years after the crisis raising cash but also running up debt, which had become cheap as the Federal Reserve slashed interest rates in an effort to stimulate the economy.
The cash to debt ratio reached 12 percent in 2017, the lowest it had been since 2008.
About half of those surveyed by BofAML said they prefer companies use their cash piles to fortify their balance sheets. A net 39 percent still say they'd like to see more capex, while just 13 percent indicated a preference for share buybacks. The capex preference is the lowest since 2009.
Corporate debt growth has been slowing, averaging 4.8 percent in 2018, according to Fed data. If that keeps up through the fourth quarter, it would be the slowest rate of growth since 2013.
The concerns over leverage dovetail with investor worries over the economy.
Pessimism about global growth have intensified, with 60 percent indicating that a slowdown in GDP gains is coming over the next 12 months. That's the worst outlook since the depths of the crisis in July 2008, just two months before Lehman Brothers collapsed and set off a global financial panic.
However, investors do not believe conditions will get bad enough for a recession, with just 14 percent seeing negative growth. Instead, they see a condition known as "secular stagnation," which posits that the global economy is in a long-term stasis in which growth will remain below trend.
"Investors remain bearish, with growth and profit expectations plummeting this month," Michael Hartnett, chief investment strategist at BofAML, said in a statement. "Even so, their diagnosis is secular stagnation, not a recession, as fund managers are pricing in a dovish Fed and steeper yield curve."
Fed officials in recent weeks have indicated a less aggressive posture toward raising interest rates. After hiking four times in 2018, the central bank is expected to move forward only if the data indicate that growth is continuing and financial conditions warrant further tightening. Investors had feared that the Fed was on autopilot and would continue hiking rates quarterly until it reached what it considered a neutral level that was neither restrictive or stimulative.