(Kitco News) Investors' cash levels are now at more than two-decade highs as bearish sentiment reaches maximum levels and markets "scream capitulation," according to the latest global fund manager survey (FMS) conducted by Bank of America Corp. (BofA).
Cash levels in October surged to the highest level since April 2001, which is 6.3%, with investors choosing to remain underweight stocks. "Market liquidity has deteriorated significantly," strategists led by Michael Hartnett wrote Tuesday.
Those polled cited recession fears and market stability risk metrics, which hit all-time highs on monetary and credit concerns, BofA said Tuesday.
"FMS screams macro capitulation, investor capitulation, start of policy capitulation," BofA said.
However, BofA said there is some good news with rising expectations of a "big rally" next year as central banks introduce a change in their aggressive monetary policy tightening.
The market rally is expected during the first half of next year, coinciding with a shift in market sentiment around the Federal Reserve monetary policy from tightening back to rate cuts. This evolution is already on its way, the survey noted.
The number of investors looking for lower short-term rates in the next 12 months doubled to 28% in October from the previous month. Also, those expecting higher rates fell from a peak of 92% in early 2022 to 59% in October, the survey noted.
BofA polled 371 participants in charge of $1.1 trillion in assets between October 7 and October 13.
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Other findings revealed that 83% of investors estimate global profits to decline over the next 12 months. Also, the long U.S. dollar trade was named as the most crowded, with a record of 68% saying the dollar is overvalued.
In a separate note this week, JPMorgan's chief global markets strategist Marko Kolanovic cut the bank's risk allocations, citing concerns about the slowing economy, tightening of monetary policy conditions, and geopolitical risks. Earlier this year, Kolanovic has been one of the most bullish voices on Wall Street.
"Recent developments on these fronts -- namely, the increasingly hawkish rhetoric from central banks, and escalation of the war in Ukraine -- are likely to delay the economic and market recovery," Kolanovic wrote.
