US equities have never been this out of favor with fund managers

by Sagarika Jaisinghani and Michael Msika

Investors slashed exposure to US equities by the most on record in recent weeks as expectations of global economic growth worsened, according to Bank of America Corp.

Fund managers’ allocation to US stocks sank to about 23% underweight, the lowest since June 2023. A net 44% of respondents in the survey conducted in March said they expected global growth to deteriorate, rising sharply from the previous month.

“Pessimism on global growth outlook is bad news for stocks,” strategist Michael Hartnett wrote in a note.

Global investors are hunting for opportunities elsewhere after US stocks tipped into a correction earlier this month. Chinese tech stocks are in hot demand and Europe has also benefited due to a brighter regional economic outlook.

Still, Hartnett said the swift decline in investor sentiment was consistent with the end of a correction in the US equity market, although the S&P 500 would rise back above 6,000 points only if there was an easing in trade war and inflation concerns.

The strategist last week recommended buying the S&P 500 at 5,300 points — about 7% lower than current levels. The index has recovered after sinking as low as 5,504 as investors worried about the impact from President Donald Trump’s trade war.

European stocks have outperformed the US this year, also boosted by cheaper valuations. BofA’s survey showed a net 39% of global investors are now overweight European equities, the highest share since mid-2021.

The survey was conducted from March 7th to March 13th and canvassed 171 participants with $426 billion in assets under management.

Copyright Bloomberg News