Just over a year since Covid-19 turned the world upside down, investors are starting to get over it.
For the first time since the pandemic’s success, respondents to the Bank of America fund managers survey said the market faces greater concerns.
Now inflation has become the biggest “tail risk”, or abnormal event, that could cause the most damage, demonstrated the widely followed monitoring by professional investors.
A total of 37% of respondents in the March poll cited the biggest challenge, followed by 35% for “taper rages,” strong reactions to the bond market in the event the Federal Reserve unexpectedly withdraws its purchases. monthly assets.
A total of 220 investors with managed assets of $ 630 billion participated in the bank’s survey, which was conducted from March 5 to Thursday.
Although coronavirus, specifically vaccine deployment problems, remains the third largest threat, it was cited by less than 15% of respondents, about half the February level.
March was the first time Covid-related concerns did not surpass the survey since February 2020.
These three concerns easily overcame a bubble on Wall Street, higher taxes, or tougher regulations under the Biden administration.
The change in priorities occurs as the U.S. vaccinates more than 2 million people a day. Hospitalizations and deaths nationwide have plummeted, although the fall in the case per day has narrowed. With most health professionals indicating a somewhat normal return to life in the summer and fall, investors are beginning to change priorities.
Inflation has been seen this year as government bond yields have risen to pre-pandemic levels. A market-based indicator, the rate of “inequality” between five-year Treasury yields and inflation-linked bonds, has jumped to its highest level in nearly 13 years.
Respondents said a move to the 2% level on the 10-year Treasury note could lead to a stock market correction, or a drop of more than 10%. A jump to 2.5% would make bonds more attractive than equities. The benchmark was trading at around 1.6% on Tuesday morning.
While markets have been volatile during accelerating yields, major averages have fallen to near-record territory. The Dow Jones industrial average has risen 7.7% to date, amid a rise in stocks such as Goldman Sachs, Boeing and Caterpillar that benefit from higher rates and a more aggressive economic recovery.
Broadly speaking, the survey shows that “investor sentiment [is] certainly bullish, ”said Michael Hartnett, chief investment strategist at Bank of America.
However, investors make adjustments to their portfolios.
Managers have reduced their allocation to technology stocks to their lowest overweight level since January 2009. The survey also found a sharp shift in commodities to an all-time high. Managers have been assigned to their position with the largest overweight in banks since March 2018. They also made the biggest move to energy since November 2018.
Equity optimism comes with hopes of having a V-shaped recovery, with 48% indicating this path for the economy. 91% net of executives expect stronger growth, the highest level in survey history.