Despite the market’s exuberance, expert investors and economists are increasingly gloomy.
- The S&P 500 reached fresh all-time highs this week
- The most recent Bank of America (BofA) Fund Manager survey showed grim sentiment among fund managers
- There is a fragility to the bounce-back in markets
Markets have bounced back over the past week, in spite of scant evidence of a resolution to the crisis in Iran. The S&P 500 is now in positive territory for the year to date and reaching fresh all-time highs. Yet the most recent Bank of America (BofA) Fund Manager survey showed that sentiment remains gloomy, suggesting that this strength is fragile.
The BofA survey’s sentiment measure dropped from 5.6 to 3.7 in March, the lowest reading since June 2025. Expectations for global growth abruptly reversed, as fund managers anticipated higher inflation. A net 69% of respondents forecast higher global consumer prices over the next 12 months, up from 45% in March.
The shift in growth expectations was the largest since the inflationary shock of March 2022. This mirrors the IMF report also released this week, where the central “reference forecast” – based on the assumption that the disruption from the war to the world economy would ebb by mid-2026 – was that global growth would fall from 3.4% last year to 3.1% in 2026, a downgrade of 0.1 percentage points.
Neither the IMF report nor the survey showed recession as a central scenario. Only 9% of fund managers are forecasting a ‘hard landing’ for the global economy, with 70% saying a recession is unlikely. The IMF outlined an “adverse scenario”, whereby oil prices remained close to $100 this year before falling back to $75 in 2027. This would see growth slip to 2.5% this year and inflation rise to 5.4%.
Nevertheless, fund managers are shifting their allocations based on the relative vulnerability of different countries. They were rotating out of European equities, with a net 25% now expecting growth to slow in the European Union, compared to a net 66% that expected it to accelerate in February. Japan and healthcare were also out of favour, with cash, the US dollar, and telecoms preferred. The UK appears to have fallen off the radar once again: the IMF delivered a 0.5% downgrade to the UK economy’s expected growth this year.
The exuberance seen in stock markets appears at odds with the generally gloomy mood among fund managers and economists. This should be a small red flag for investors. It suggests there is the potential for another leg down in stock markets if the uncertainty over Iran persists. While markets continue to position for a best-case scenario, expert investors and economists are starting to have their doubts.
