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Bank of America: Sentiment no longer apocalyptically bearish

Yahoo Finance anchors break down findings from the Bank of American hedge fund managers survey.

Video transcript

- Another thing that we're watching, though, the broad picture Bank of America offering in their global fund manager survey. They're saying sentiment no longer-- and this is their words-- apocalyptically bearish.

And one reason is it come down in inflation expectations, as you can see on the chart ahead of you. This is the net percentage of fund manager investors that expect higher inflation. That negative number that you see us falling down to shows that fewer of them expect inflation to go up further from here.

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And that's very significant when you see that little spike? You see that-- it popped up and then it went back down again? That was kind of like the mid-summer worries that actually peak inflation wasn't necessarily ahead of us on the road. Maybe that last CPI print at 8.5% shows that that might be behind us in the rear view.

But I want to combine this with the risk tolerance story that the fund manager survey really showed. Another chart illustrating right here the level of risk that you're willing to take on here. Right? What percentage of fund manager investors say they're willing to take more than normal risk levels. It bounced back marginally in this July survey, but certainly not up to pre-pandemic levels.

So if the story is that investors are worried about inflation not necessarily peaking, you're not seeing people putting their money where their mouth is at the same time.

- Although you could always make the argument that if you look at the markets it is forward-looking. So that doesn't necessarily mean that we're not going to see more pain. It is about the ultimate outlook and something we've been talking about a lot, which is, is there a hard landing on the other end?

It feels like increasingly people are saying, well look, even if there's a recession, it will be pretty short-lived. What's interesting to me, though, is you look at that number-- I mean, it is-- people are still cautious. Right? I mean, even if they're a little more optimistic about the inflation outlook, they're not necessarily diving right back in going, risk-on.

- And a lot of this could also just be part of the transition into what we've seen already. Because remember, this is a survey that covers July, essentially a bull market in a bear market. Right? You have to go from apocalyptically bearish to what they describe as patient bear--

- The bar was high up there.

- And then you become maybe a patient bull, and then, you know, stocks go to the moon. Right? So I think maybe that's the story that's happening here and that's unfolding over the next few fund manager surveys we will see.