Expectations for inflation, meanwhile are at an almost five-year high, BofA strategists led by Michael Hartnett wrote in a note. Overall sentiment among investors is the most bearish since last June.
The Middle East conflict, which began on February 28, has triggered a spike in oil and natural gas prices. That’s driving concerns higher energy costs will weaken growth and prompt central banks to increase interest rates to combat rising prices. Markets have been whipsawed as investors track the latest headlines on efforts at de-escalation.
Hartnett said the survey findings are “contrarian positive for risk assets,” provided a ceasefire pushes the price of oil below $84 a barrel. In Tuesday’s trading, stocks rose and benchmark Brent crude fell below $99 as Iran and the US considered another round of peace talks.
The survey was conducted April 2-9, among 170 participants overseeing $511 billion in assets. Three-fourths of investors responded before the April 8 announcement of a ceasefire, BofA said.
Global growth expectations dropped by the most since the survey of March 2022, in the aftermath of Russia’s invasion of Ukraine, the latest poll shows. Even so, the S&P 500 Index erased its war-driven losses on Monday, while the Nasdaq 100 is poised for its longest streak of gains since 2021.
“Investor macro expectations and US equity prices have once again diverged,” Hartnett wrote.Seven out of 10 survey participants still consider a recession to be unlikely and a majority continue to expect a “soft landing” for the global economy as the most likely scenario, according to the survey.
Despite the potential “contrarian positive” signal, the strategists cautioned this was not a “close-eyes-and-buy” situation for markets. With investors still long global stocks, their positioning will require rate cuts and estimate-beating earnings to sustain new highs for equities. Cash levels remained at the previous month’s level of 4.3%, signaling “no surge” into this defensive asset.