Economic growth outlook worsens
The BAML (Bank of America Merrill Lynch) September survey indicated that investors’ outlook for economic growth has worsened. In August, a net 7% of the managers surveyed expected global growth to slow down next year. In September, the percentage climbed steeply to 24%. That makes it the worst outlook on the global economy since December 2011.
Cash holdings rise
The average cash balance in September was 5.1%, which is an 18-month high. In August, cash balances were 5%. They were also higher than the average 4.5% over the last ten years. Usually, cash balances rise when pessimism for growth among investors rises. The overall allocation to equities fell 11 percentage points to a net 22% overweight, which is the lowest in almost 18 months.
As reported by Reuters, BAML chief investment strategist Michael Hartnett said, “Investors are holding on to more cash, telling us they are bearish growth and bullish US decoupling.” Hartnett also said, “Fund managers are signalling that they are starting to price in a hawkish Fed.”
Fed’s hawkish stance a concern
Investors are also concerned about a more hawkish stance by the central banks, especially the Federal Reserve, which started tightening its monetary policy in December 2015 after years of quantitative easing.
The Fed is widely expected to increase interest rates (TLT) by 25 basis points in its September 25–26 meeting. The respondents also expect that US (SPY) (VTI) growth could slow down and that the major worry driving that expectation is the ongoing trade tussle and higher interest rates.