That was Bank of America summing up a monthly global fund managers survey that could offer the latest proof that investors have at least mentally turned a corner when it comes to the COVID-19 pandemic.
Its chart reveals what investors view as the biggest “tail risks,” or relatively unlikely events that could cause outsize losses or gains. It marks the first time in more than a year that COVID-19 isn’t at the top of that list.
“A year ago, COVID-19 was named a global pandemic on March 11th. COVID-19 has been named for the last 12 months as the [No. 1] investor ‘tail risk.’ This month, however, for the first time since [February 2020], it is no longer the largest risk,” said a team at Bank of America led by chief investment strategist Michael Hartnett, in a note to clients.
COVID-19 has been replaced in the March fund-manager survey by inflation, which was indicated as a bigger risk by a net 37% of those surveyed, and “taper tantrums,” seen by 35% as a bigger risk, Hartnett said.
Steep gains in bond yields
in recent weeks have raised the chances in the eyes of investors of a “taper tantrum” like the one in 2013, when the prospect of rising rates rattled the broader market. A sudden jump in rates has also recently put pressure on growth stocks and increased concerns about an inflation surge amid trillions of dollars’ worth of pandemic stimulus aid.
Yet bullishness abounds as stocks stomp to new highs and COVID-19 vaccines roll out across the U.S. The survey shows a net 48% of those surveyed see a “V-shaped” recovery, a quick and sustained bounce for the economy, up substantially from just 10% in May 2020.
A net 89% of managers surveyed see improving global corporate profits over the next year, beating highs from February 2002 and December 2009.
Expectations for higher yields have fallen:
Higher growth and higher inflation are dominant expectations:
Those investors who think a bubble is brewing are in the firm minority:
And here’s where investors are leaning now: cyclical stocks geared to that post-pandemic recovery. Managers cut exposure to technology stocks to the lowest level seen since January 2009, Bank of America found:
And here’s a look at the way we were — a year ago when the pandemic was unfolding and investors were playing defense: