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Fund managers see 'low growth, low inflation' but no recession: survey

Javier E. David
Editor focused on markets and the economy

If a recession is on the horizon, someone forgot to tell large investors — most of whom are prepared for an economic slowdown but not an outright contraction, according to new data from Bank of America-Merrill Lynch (BofA).

The bank, which recently surveyed more than 200 fund managers with over $664 billion in assets under management, found that investors were positioned for “secular stagnation” rather than a recession, defined as two consecutive quarters of negative growth.

A slim 6% expect to see growth contract this year, BofA found, while a whopping 70% don’t see that happening until 2020 at the earliest.

However, 2/3 are bracing for a “low growth, low inflation” economy — the highest number since Oct. 16.

Amidst a debate over the direction of short-term rates compared to longer-dated yields is signaling economic trouble, an overwhelming majority — some 86% — do not think the yield curve is telegraphing a recession, the bank added.

Trader Steven Kaplan works on the floor of the New York Stock Exchange, Friday, April 12, 2019. U.S. stocks moved broadly higher in early trading Friday on Wall Street, putting the market on track for gains at the end of a shaky week. (AP Photo/Richard Drew)

Still, most fund managers do see emerging risks to global growth, which include a ramping up of trade tensions and a slowdown in China, the world’s second largest economy. Those potential pitfalls “keep growth expectations low [and keep] positioning to equities and cyclicals well below normal.

Among fund managers, bearishness on European stocks “is still the most crowded trade,” BofA noted, but some contrarian investors prefer eurozone equities, energy and utilities, according to the survey.

Meanwhile, over 40% of fund managers believe Corporate America needs to “improve [its] balance sheet” and steer clear of stock buybacks and dividends. Only 16% prefer the latter, BofA said.

Javier E. David is an editor focused on markets and the economy at Yahoo Finance.