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7 in 10 Investors See Inflation as Transitory: BofA Survey

By Michael S. Fischer

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What You Need to Know

  • Seventy-two percent of fund managers said inflation was transitory, while just 23% said it was permanent.
  • Net 75% of respondents expect a stronger economy in the next 12 months, down 9 points month over month.
  • Sixty-eight percent of investors said they did not expect a recession until 2024 at the earliest.

Bullish investors are positioned for growth, transitory inflation and a benign Federal Reserve taper via long investments in commodities, cyclicals and financials, according to the latest global fund manager survey from Bank of America Global Research.

The survey was conducted June 4 to June 10 among 224 investors with $667 billion in assets under management.

Sixty-four percent expect a higher Consumer Price Index over the next 12 months, down 19 percentage points from the May survey. At the same time, 72% of fund managers said inflation was transitory, while just 23% said it was permanent.

Net 75% of respondents said they expected a stronger economy in the next 12 months, down 9 points month over month.

The survey found that above-trend growth and above-trend inflation remain investors’ top expectation, with a record 76% of fund managers expecting this outcome over the next 12 months, up 7 points. Just 11% now expect above-trend growth and below-trend inflation in the global economy, down 8 points.

BofA said that assuming the transitory inflation consensus is correct, the peak in growth and profit expectations means the investment cycle is transitioning from early-cycle to mid-cycle, with 48% of investors thinking the economy is mid-cycle.

Sixty-eight percent of investors said they do not expect a recession until 2024 at the earliest, while 26% think a recession will occur that year and 25% say it will happen in 2023.

Sixty-three percent of survey respondents said they expect the Fed to signal taper this summer, either at its annual Jackson Hole symposium in late August or at the September Federal Open Market Committee meeting.

On average, fund managers expect a roughly $1.7 trillion U.S. infrastructure package to pass.

Allocations

Investors’ cash levels fell 2 percentage points from May to 3.9%. The fund manager cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities, and when the cash balance falls below 3.5%, a contrarian sell signal is generated. 

Cash allocation held steady at its highest level since October, at net 9% overweight.

Investors’ equity allocation in June increased 7 points to 61% overweight. Asked what they thought the maximum peak to trough correction for the S&P 500 in the next six months would be, 10% said it would be less than 5% and 47% said it would be less than 10%.

As in last month’s survey, investors in June continued to rotate out of utilities and staples and into banks, industrials, materials and technology stocks. Bank allocation remained the top sector overweight for the third consecutive month, at net 30% overweight.

Allocation to technology recouped its 9-point plummet last month to 11% overweight, shooting up to 22% overweight in June.

Twenty-six percent of fund managers said long commodities were the most crowded trade in June. Twenty-one percent said long Bitcoin, and another 21% said long tech stocks.

Inflation and a taper tantrum were most on the minds of investors as the top tail risks in June, each cited by 30% of respondents. Asset bubbles, COVID-19 and China slowdown trailed at 15%, 10% and 2%.

Michael S. Fischer

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