Large investors have been raising cash holdings to the highest levels since the 9/11 attacks

Large investors have been raising cash holdings to the highest levels since the 9/11 attacks

Cash holdings among global fund managers have risen to a high level since the 9/11 terrorist attacks in the United States, a shift that reflects large investors’ concerns about the deteriorating stock market outlook.

Cash balances rose to an average of 6.1 percent across Bank of America’s global asset allocator portfolio, which gained the views of 288 investment professionals who jointly oversee $ 833 billion in assets for retirement plans, insurance companies, asset managers and hedge funds.

The cash changeover – which is usually in vogue in times of increased risk aversion – coincides with a significant weakening of corporate earnings expectations. A net 66 percent of fund managers said in May they expected global profits to weaken, which is at least comparable to other times of crisis, including the Lehman Brothers implosion in 2008 and the dotcom bubble burst in 2000.

Michael Hartnett, chief investment strategist at Bank of America, said investor sentiment was now “extremely bearish” and a net 13 percent of fund managers had moved to an “underweight” position in equities, compared to a net 6 percent “overweight.” in April.

“It has damaged investors’ psychology a lot and this is the result,” Hartnett said.

Wall Street analysts have revised their U.S. corporate earnings forecasts for this year since January, and Hartnett said little good news could lead to a temporary market recovery. But he also warned that the “ultimate low” for stocks had not yet been reached with the MSCI All Country World index, a global benchmark that has fallen by almost 17 percent in dollar terms since the beginning of the year.

The US Nasdaq Composite Index has fallen by almost a quarter since the beginning of the year and fell into the bear market as investors moved away from previously highly rated technology companies.

Global fund managers have held a consistently “overweight” exposure to technology stocks over the past 14 years, but the allocation fell to a net 12 percent “underweight” in May.

“This is the biggest ‘short’ in technology since August 2006,” Hartnett said.

Goldman Sachs holds an “overweight” cash position and lowered its stock rating to a “neutral” position in the three-month outlook on Monday.

Christian Mueller-Glissmann, a strategist at Goldman in London, said investors would need to see a “convincing peak” in inflation – a 40-year high in the United States – before risk appetite could stabilize.

“Equities are now negatively correlated with inflation expectations, suggesting that investors are much more concerned about inflationary risks and their impact on equities,” Mueller-Glissmann said.

Richard Dunbar, head of multi-asset research at Abrdn, an Edinburgh-based asset manager, said high and persistent inflation was raising doubts about whether the Federal Reserve should avoid pushing the US economy into recession to restore price stability. .

“Investors do not yet anticipate a recession in the United States, but pessimism is growing about the Fed’s ability to use a needle monetary policy to achieve a soft landing for the US economy,” Dunbar said.

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