The Largest Threat To Markets, According To Fund Managers, Is A "Systemic Credit Event"

Following results from their most recent survey, Bank of America economists have stated that fund managers believe a systemic credit crisis to be this month's biggest tail risk.

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The systemic credit crunch was ranked as the largest danger to markets by 31% of the 212 fund managers surveyed in the bank's most recent global fund manager survey, with tenacious inflation coming in at 25%.

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Participants assert that US corporate debt, US real estate, and US shadow banking are the most sources of a credit event.

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The participants, who oversee $548 billion in assets, were polled between Mar. 10 and Mar. 16 when the collapses of Silicon Valley Bank SIVB (-60.41%), Signature Bank SBNY (-22.87%), and other banks sparked a bank panic.

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Investors predict that the Federal Reserve will raise rates by an additional 75 basis points during this cycle, with rates peaking between 5.25% and 5.5%. Around a quarter believe the ECB will increase its interest rates by an extra 50 basis points. The Fed would not raise its 2% inflation target during the next two years, according to nearly two thirds (65%). Additionally, over half (57%) of investors anticipate lower short-term rates during the following 12 months.

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The S&P 500 index SPX, +1.30% might see a floor around 3,800, and investors should try to fade any gains when the index benchmark climbs between 4,100 and 4,200, according to Michael Hartnett, a BofA investment strategist, who stated this in the research.

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The S&P 500 has gained over 3% so far this year, but it has lost 3% over the past month.

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Investor concerns about a recession are also more intense than they were last month. A net 42 percent of fund managers, or more than four in ten, believe a recession will occur within the next 12 months. More investors (55%) are encouraging corporations to strengthen their balance sheets as these worries spread.

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Money managers are much more optimistic on European companies than on American stocks, according to the survey, which is the most positive trend since October 2017. They continued by saying that the most active trades were long positions in China, the U.S. currency, and European stocks.

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According to the research, investors switched out of equities in the banking, consumer, and REIT sectors over the past month but jumped into bonds, staples, and stocks from the Eurozone.

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