Investor Sentiment Turns Bearish Amid Global Concerns
In March, global investors shifted to a distinctly bearish outlook, largely driven by the ongoing conflict with Iran and rising apprehensions regarding private credit markets, according to the latest Bank of America Global Fund Manager Survey released on Tuesday.
The cash holdings of the 210 fund managers surveyed, who oversee a combined $589 billion in assets, rose to 4.3% of their portfolios, up from 3.4% in February. This represents the largest monthly increase since the COVID-19 pandemic began in March 2020. BofA considers cash levels a contrarian indicator, signaling a “sell” when cash dips below 4%. The rationale is that low cash levels indicate managers are heavily invested, which can make the market susceptible to downturns. Conversely, a cash level above 5% is seen as a “buy” signal, probably indicating excessive market fear. The March uptick pushed cash levels past the sell threshold, returning the index back to neutral.
Overall sentiment, tracked by BofA’s composite index, dropped from 8.2 to 5.6—marking the lowest point in six months, though it’s still significantly above the low of 1.8 experienced during the Liberation Day selloff last April.
The shift in outlook has been notable. The percentage of executives predicting a strong global economy over the next year plummeted to a net 7%, down from 39% in February. Meanwhile, inflation expectations soared from a net 9% to a net 45%, suggesting what BofA strategists refer to as a “second wave rise” in price pressures. Expectations for interest rate cuts have also dipped to their lowest since February 2023.
Despite this grim narrative, concerns about a recession seem somewhat muted. Just 5% of those surveyed foresee a hard landing for the global economy, while 46% expect a hard landing and 44% predict a soft landing.
Geopolitical conflicts now dominate the list of investor concerns, with 37% naming it as their primary risk, a significant increase from 14% in February. The worry over an AI bubble, once the top concern, has diminished to just 10%. For the eighth consecutive month, private equity and private credit have been named as the leading causes for potential systemic credit events, noted by 63% of managers. BofA’s separate credit default risk measure has surged, with 46% of managers indicating their risk is above normal, up from 17% the previous month.
This changing perspective has resulted in considerable shifts in portfolio allocations. Managers have moved away from banks, European stocks, and consumer goods—areas now regarded as the most underweight since December 2022—shifting toward Japan, healthcare, and cash. Commodities have experienced their highest allocation since April 2022, while emerging market equities are seeing their greatest overweight since February 2021. Allocations to U.S. stocks, however, remain subdued, with a net underweight of 17%, showing some improvement from the previous month’s 22%.
Interestingly, gold and global semiconductors are now viewed as the most crowded trades, each recognized by 35% of respondents. Trading activities around the Magnificent Seven stocks peaked at 54% in December but have since decreased dramatically, with only 9% now considering it the most crowded position.
The oil market reveals a parallel skepticism regarding the war premium. Brent crude is currently trading around $102 per barrel, yet managers’ average price forecast for the end of the year is only $76, with just 11% predicting prices will cross $90 by December.
Bank of America strategists have pointed out that while market sentiment has turned sufficiently pessimistic to support contrarian strategies—such as selling oil priced above $100 and buying 30-year Treasuries at 5%—the current positioning does not exhibit the extreme levels that typically accompany market lows.
In comparison, during previous crises like the Liberation Day selloff last April, the COVID-19 outbreak in March 2020, and the 2011 debt downgrade, equity allocation and flow metrics were decidedly worse than what we’re seeing today.
On the political front, 54% of managers anticipate a divided Congress following the 2026 midterm elections, projecting that Democrats will reclaim the House while Republicans retain control of the Senate. Notably, the likelihood of a Democratic landslide has risen to 28% from just 11% two months prior.
