Instos see record rotation out of US equities amid ‘bull crash’: BofA

Investors have slashed their US equity allocations to the lowest level on record, according to new data from Bank of America (BofA).

BofA’s latest Fund Manager Survey (FMS) of 171 asset allocators, conducted between 7 and 13 March, revealed a sharp 40-percentage point drop in US equity allocations month on month to a net 23 per cent underweight – the lowest level since June 2023 and the largest decline on record.

“Sixty-nine per cent of investors now say ‘US exceptionalism’ has peaked,” the bank said, labelling the phenomenon a “bull crash”.

This drop was driven by fears of a stagflation and a trade war, with a record 71 per cent of respondents expecting a stagflation over the next 12 months, the highest level since November 2023.

“That said, no one is long recession/bonds, and FMS positioning is nowhere near extreme bear/close-your-eyes-and-buy levels,” BofA said.

Global growth expectations also took a hit, recording the second-largest drop on BofA’s records, plunging to -44 per cent in March from -2 per cent in February.

The survey also revealed the second-largest monthly surge in bearish sentiment on record, with 63 per cent of investors now expecting the global economy to weaken over the next 12 months.

“The rise in global economic growth pessimism was driven by a worsening outlook for the US,” BofA said.

Namely, the trade war was cited as the number one tail risk by 55 per cent of respondents, while around a fifth of investors continued to cite “inflation causes Fed to hike” as the greatest risk. Interestingly, as many as 13 per cent of respondents reported being most concerned about the impact of the Department of Government Efficiency (DOGE) on the US economy.

In a full-blown trade war scenario, 58 per cent of investors said they expect gold to be the top-performing asset, followed by 30-year Treasuries (16 per cent), three-month T-bills (9 per cent), and commodities (6 per cent).

Looking at allocations in March, BofA revealed a broader rotation out of global equities, which dropped 29 percentage points to net 6 per cent overweight. This decrease, it said, was the fifth-largest on record.

Meanwhile, allocations to eurozone stocks reached their highest level since July 2021, while bond allocations were net 13 per cent underweight, up from 11 per cent underweight.

Overall, “Long Magnificent Seven” remained the most crowded trade, with 40 per cent of respondents finding it so, but this is down from 71 per cent in July last year. It was followed by “long European Union stocks” and “long crypto”.

Notably, cash saw its largest surge since the pandemic’s onset, shifting from net 6 per cent underweight to 10 per cent overweight.

BofA’s latest survey signalled that the bulk of the S&P 500 equity correction may be over, citing a rise in cash levels above 5 per cent as a key “buy signal”.