Bank of America's fund manager survey for July has turned up a bearish outlook among the pros: a net 12 per cent of global money managers predict that the global economy will deteriorate within the next 12 months. This represents a sharp reversal. Just two months ago, a net 42 per cent of managers expected a stronger economy.
There are other bearish signals in the survey. Cash levels have been raised to 4.4 per cent, which is pretty high for this crowd. And a net 39 per cent of respondents said that the risk exposure within their portfolios is lower than normal.
As Bank of America equity strategists Gary Baker and Michael Hartnett point out, the survey's results look a lot like March 2009. Then, bearishness also prevailed among money managers (and just about everyone else), but the month also marked the bottom of the stock market's steep decline. Does this mark a similar turning point in the market's fortunes?
"Growth and profit expectations have double-dipped. Should upcoming data fail to confirm a double-dip, risk assets will have a much better third quarter," Mr. Hartnett said in a note.
The survey arrives not long after similar readings on retail investors. The weekly survey by the American Association of Individual Investors found that bearish sentiment among small investors rose slightly above 57 per cent. That, too, is the most bearish reading since March 2009.
And, according to Investors Intelligence (via Bespoke Investment Group), even financial advisers are feeling out of sorts these days: 34.8 per cent are bearish, which is the highest reading since July 2009. At the start of the year, a mere 15 per cent were bearish.
Of course, readings like these can only feed contrarian thoughts about the stock market. If everyone is shy of stocks, it can mean that expectations are low.
The surveys also arrive after the most tumultuous period for stocks since the market began to recover 16 months ago. From late April until early July, the S&P 500 slid 16 per cent - putting it deep into correction territory and coming close to an official bear market, defined as a drop of 20 per cent or more.
Since the start of July, though, the index has gone on a six-day winning streak (including Tuesday, so far), rising 6.8 per cent in total. Maybe bearishness is just what the market needed.
David Berman