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Fund manager sentiment has been highly correlated with the performance of the S&P 500. BofA analysts led by chief investment strategist Michael Hartnett said dimming views about American stocks have driven a “bull crash” in sentiment, but they indicated the speed and scale of the correction bodes well for the market going forward.
Money managers’ optimism has faded fast in the early days of Trump 2.0. Bank of America’s monthly global fund manager survey revealed sentiment nosedived in March, resulting in the second-worst plunge in global growth expectations and biggest drop in U.S. equity allocation since BofA began conducting the survey in 1994.
Respondents signaled their selling spree helped fuel the stock market’s recent correction as they parked their money on the sidelines—mirroring Warren Buffett’s record $334 billion cash pile.
America’s most revered investor, however, gave a famous piece of advice in a letter to Berkshire Hathaway shareholders in 1968: “Be fearful when others are greedy, and greedy when others are fearful.” Indeed, while BofA analysts led by chief investment strategist Michael Hartnett said dimming views about American stocks had driven a “bull crash” in sentiment, they indicated the speed and scale of the correction bodes well for the market going forward.
Nonetheless, there’s no doubt the 171 survey respondents, who manage roughly $425 billion in assets combined, have been spooked by President Donald Trump’s on-again, off-again tariff threats. In February, a net 2% of investors expected a weaker global economy over the next 12 months, meaning that a small majority of respondents were pessimistic at the time. That number has since ballooned to 44%—the worst single-month plunge in growth expectations aside from March 2020, or the onset of the COVID-19 pandemic in the U.S.
Fund manager sentiment, BofA said, has been highly correlated with the performance of the S&P 500.
“Pessimism on global growth outlook is bad news for stocks,” the team wrote when the survey, conducted during the second week of the month, was released last week.
After Trump’s election win in November, hopes the new administration would prioritize tax cuts and deregulation fueled a big rally for stocks. Instead, Trump has appeared fixated on the use of tariffs not only as a bargaining chip but also as a tool to address America’s trade deficit, resulting in massive uncertainty about U.S. trade policy.
In the BofA survey, 55% of fund managers said a trade war-induced recession is the biggest “tail risk” faced by the market—the most-cited factor since “COVID resurgence” in April 2020—followed by inflation forcing rate hikes by the Federal Reserve and concerns about the impact of Elon Musk’s Department of Government Efficiency, also known as DOGE.