Fleeing the scene: Investors have dumped a record amount of US stock as stagflation fears bite
AP Images / Richard Drew
- Global fund managers dumped a record amount of US stock during last week's sell-off, BofA found.
- The surveyed investors expressed pessimism around the global economic-growth picture.
- Stagflation was a commonly-cited fear, with expectations for the scenario at the highest since late 2023.
As US stocks slipped into a 10% correction last week, investors were dumping shares at a record clip.
Global fund managers reduced their allocations to US equities by the most ever between March 7 and 13, according to a Bank of America survey featuring 171 investors overseeing a combined $426 billion in assets.
Bank of America says the rotation out of US stocks into international assets like eurozone, UK, and emerging-market equities was driven by concerns of an economic slowdown.
BofA Global Fund Manager Survey
Key among investor worries is the possibility of stagflation, which involves a toxic mix of below-trend growth and persistently high inflation. It effectively ties the Fed's hands, leaving them unable to raise or lower rates in order to address either situation.
71% of fund managers said they expected a stagflation to hit the global economy over the next 12 months, the survey showed.
The main culprit in the stagflation narrative is Trump's trade war. After an initial boom period built around pro-business expectations, the luster has worn off, and investors and economists alike have started to fret about a global slowdown.
The chart below shows how pronounced stagflation worry has become in recent months:
Bank of America Global Research
Another common refrain in the fund manager survey was that US exceptionalism as we know it may be over. 69% of fund managers said they think US outperformance relative to the rest of the world has "peaked."
As such, following the record-sized allocation trimming last week, fund managers are now positioned 23% underweight the US equity market, the lowest since June 23.
Bank of America Global Research
Bank of America strategists led by Michael Hartnett do see the possibility of a near-term rebound in US stocks, with the S&P 500 potentially climbing past 6,000 in the second quarter if concerns about inflation and the trade war begin to subside. On the flip side if the economy tips into a recession, the bank says the S&P 500 could drop below 5,000.