Investors are fearful of inflation and worried that economic growth will slow and stocks may cool off, according to the latest Bank of America Fund Managers Survey. As pressures heat up on financial markets, Wall Street professionals are loading up on cash, which now makes up 4.7% of portfolios, up from 4.3% and the highest relative net allocation in 15 months, the October sentiment gauge shows. The move to cash comes as investors have sold bonds. Stock sentiment has turned notably bearish, with BofA's Bull & Bear Indicator ticking down one-tenth of a point to 5.0, the midpoint of the gauge. The indicator measures cash levels as well as cyclical against defensive stocks and equities against fixed income. Investors are bearish on global growth, with a net 6% seeing weakening conditions ahead, a reversal of 19 percentage points from September and the worst level since March 2020, the outset of the pandemic. Also, a net 15% see earnings falling after the blistering 2021 pace. Allocations to commodities rose while the share of bonds plunged to record lows as inflation worries escalated . Indeed, 48% of respondents listed inflation as the biggest "tail risk" to the outlook, far ahead of China at 23% and way in front of pandemic fears , which were cited by just 3% of the 430 panelists overseeing $1.3 trillion in assets under management. Respondents are still mostly of the mindset that inflation is "transitory" – the Federal Reserve's preferred term – rather than permanent, though the gap is shrinking. In October, transitory led 58% versus 38% who believe inflation is here to stay. That's down from 69% to 28%, respectively, in September. Also, worries over stagflation – higher inflation but lower economic growth – jumped 14 percentage points to 34%. Fund managers moved their chips around in other ways as well in response to the changing conditions. They rotated from healthcare and consumer staples into banks and energy, which are now the No. 1 and No. 2 sectors globally. On the backs of surging prices , energy stocks are now at their biggest overweight position since March 2012. Investors also reduced utilities and staples, and Europe now boasts the biggest allocation from a country perspective, though U.S. overweight positions rose to a 12-month high. On interest rates, 44% of respondents expect the Fed to enact one 25 basis point increase in 2022, less than the two indicated by futures traders as measured by the CME's FedWatch tracker. Respondents were split evenly at 24% between those expecting two hikes and zero.
