Global Fund Managers Fear 'Bear Market Rally', Second Coronavirus Infection Wave - BofA Survey

Fund managers controlling more than half a trillion in assets are worried that stocks are in a 'bear market rally' that could fade quickly in the face of a second wave of coronavirus infections.

Global Fund Managers are concerned that the current equity market rally might not last, according to a closely-watched survey published Tuesday by Bank of America, noting that the 'tail risk' of the second wave of coronavirus infections could cancel hopes of a V-shaped economic recovery.   

The May BofA Fund Managers' Survey, which polled more than 190 investors controlling nearly $600 billion in assets, found that more than two-thirds of respondents said the current upturn is a 'bear market rally" that is unlikely to hold. The level of pessimism, BofA said, was the highest since December 2007.

Recovery hopes are also looking bleak, the survey indicated, with most investors betting that global PMI data won't reach the 50 mark that separates growth from contraction until at least November, putting the chances of a V-shaped rebound at just 10%.

Echoing the views of Federal Reserve Chairman Jerome Powell, who told CBS's 60 Minutes earlier this week that a full U.S. recovery is unlikely without a workable coronavirus vaccine, the survey noted that such a breakthrough is the only likely catalyst for a V-shaped -- or rapid -- economic rebound.

The biggest 'tail risk' for any recovery, however, remains concerns for a second wave of the virus hitting major world economies later this year, although nearly half (44%) cited rising protectionism and higher taxation (42%) as key concerns moving forward.

The survey also indicated fund managers are favoring cash, with allocations slipping modestly from last month to 5.7% of total assets and are adding to fixed income positions -- mostly from U.S. markets -- at the fastest rate since July of 2009 and are holding record longs in healthcare stocks. 

U.S. tech and growth stocks, the investors said, remain the most crowded trading in the Fund Managers' Survey. In fact, around 60% expect those sectors to underperform, the most since December 2007.