The most popular Wall Street investor survey is out, and it paints quite a dire outlook

Published Tue, Mar 15 20228:28 AM EDT

Professional investors are looking into the future and see a combination of threats adding up to the worst picture for the global economy since the financial crisis, according to the latest Bank of America Fund Manager Survey. Respondents reacted to the toxic cocktail of headwinds by shifting strongly to cash and moving their portfolios to the highest allocation ever for commodities, at 33%. Just a month ago, concerns over inflation were abating. But that changed in March, as a net 62% now expect the U.S. economy to see stagflation , a combination of higher inflation and lower growth. That number more than doubled from February's reading of 30%. At the same, expectations for global growth tumbled to the lowest level since the Lehman Brothers collapse in September 2008. The results come with the U.S. stock market in a correction and tech stocks in an outright bear market. The Ukraine war has only exacerbated worries about inflation, with survey respondents still expecting about five interest rate hikes from the Federal Reserve this year. Some 341 panelists with $1 trillion of assets under management responded to the survey. They view the Russia-Ukraine conflict as the biggest "tail risk," as 44% of respondents listed the war as the biggest threat to have outsized impact. Global recession was cited by 21% and inflation was next at 18%. The month saw a "major rotation" out of banks and consumer stocks to technology, staples and utilities and a 10-year high for a move from small-caps to large-caps. Investors also shifted money from Europe into the U.S. Cash levels jumped to 5.9% of portfolios, around the same levels as the beginning of the Covid pandemic and higher than the 5.3% during the European debt crisis in 2011-12. Allocations to cash and diminished expectations for growth and corporate profits, at the lowest since April 2020, are both "recessionary," according to Michael Hartnett, Bank of America's chief investment strategist. A net 60% of respondents see the current market as "late-cycle," common around the time of recessions. However, inflation expectations are not recessionary, and most Wall Street pros still see the Fed hiking rates this year.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, March 14, 2022.

Brendan McDermid | Reuters