72% of fund managers say inflation is transitory: BofA survey

Myles Udland, Brian Sozzi, and Julie Hyman break down the latest Bank of America fund manager survey, which finds that investors are “bullishly positioned for permanent growth.”

Video Transcript

JULIE HYMAN: And on that front, we have sort of two data points this morning on how these increases are being perceived. In other words, we have a Bank of America Fund Managers Survey and how those folks are feeling about inflation. And it seems, by and large, Brian, there's not a lot of concern there. Or there is a belief that, indeed, it's going to be transitory.

And then you have some comments from Jamie Dimon as well as JPMorgan sort of hedging against inflation, which is interesting as well. Soz, what stands out to you from the Bank of America survey?

BRIAN SOZZI: Well, other than fund managers noting-- and I got a story right now on Yahoo Finance detailing this, saying 81% of those fund managers surveyed said Bitcoin is in a bubble despite the price crash. That was very interesting.

But on the topic of inflation, 72% of fund managers surveyed according, to B of A, say inflation is in fact transitory. 23% say it's permanent. And also along this thread, they see growth and EPS expectations might have peaked.

Myles, it is interesting. If fund managers believe that inflation has peaked and it is in fact transitory, I'm surprised we're not seeing that rotation back into growth stocks. We talked a little bit about it yesterday. The value trade remains, I think, firmly intact. But if you believe-- if you truly believe that inflation is going to be less of an issue second half of this year, the rotation into growth should start now. And I don't think it has started yet.

MYLES UDLAND: Well, I mean, the NASDAQ's basically at a record high. And we got a record high in the S&P. So I feel like we are starting to see that growth rotation kind of underway here. And I think it'll be interesting to track how that plays out through the summer because that's been the default trade for most investors over the last decade. And it starts to feel like we're getting back to basics to some extent here in the market.

A chart in that survey, Sozzi, which also stood out to me is that, for the first time since the pandemic began, so basically since the recession caused by the pandemic began, the survey shows that more investors believe we are now in the mid-cycle or in a mid-cycle environment than an early cycle environment. That's fine. But it stands out to me that the first time that ratio flipped during the post-financial crisis environment was 2010. And then the economy expanded for nine more years.

So that we see folks viewing this as a mid-cycle environment perhaps means, I think as you're kind of suggesting, we're now going to get back into the kinds of dynamics that drove the economy through the longest expansion that we've seen, really on record, which is investors defaulting into growth, inflation pressures remaining fairly at bay, central banks remaining fairly accommodative. And maybe we just kind of do it all over again.

There was note from the team over at Morgan Stanley over the weekend, which sort argues that we are not going back to that sort of environment. But this survey of investors kind of says to me like we're setting up-- or investors at least think we're re-entering those kinds of same conditions.

But then again, investors just think the future is going to look like the past anyway, which isn't a terrible axiom. It's not an awful way to go about setting up a portfolio or something like that. But it is a genre, if you will.

JULIE HYMAN: Well, and again, I want to reiterate what a really big investor said he's doing. That's Jamie Dimon at JP Morgan. He says the bank's been effectively stockpiling cash, not deploying it right now because he thinks rates are going to go up eventually, whenever that may be. And he said this at a conference, by the way, yesterday.

He said, we have a lot of cash and capability. And we're going to be very patient because I think you have a very good chance inflation will be more than transitory. Whether he's right or not, he's keeping dry powder, so to speak, in order to deploy it on higher-yielding assets.

So it sounds like he's going to put it to work in the market here. So it'll come back in. It's just that the bank is not seeing, necessarily, those opportunities or waiting for rates to go higher to have those opportunities, which is an interesting move right now.

MYLES UDLAND: I mean, isn't that definitionnally not inflationary?

JULIE HYMAN: One would think so. So I don't know. It's not the first time that a head of a bank says one thing and then does the other thing.