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Jun 15, 2021

Bullish investors say inflation only transitory, finds survey

Any correction to S&P 500 over next six months will be less than 10 percent, say fund managers

Investors are positioned for ‘permanent growth’ and see the current inflation spike as only temporary, according to a survey of global fund managers by Bank of America (BofA).

The research, which polled 207 investors with $645 bn in assets under management, finds money managers in a bullish mood with cash levels at 3.9 percent, down from 4.1 percent the previous month.

The findings suggest investors are – for now, at least – sanguine about the potential of the Federal Reserve to reduce its support for the US economy. The Fed’s rate-setting committee meets this week, though no major changes in policy are expected.

Inflation fears have dogged markets for most of the year. Investors are worried that the combination of cheap debt, an economic rebound and record government stimulus could cause the US economy to overheat, forcing officials to raise interest rates earlier than expected.

Last month consumer prices rose at their fastest rate for 13 years, according to data from the Labor Department. So far, however, the Fed has maintained its position that higher inflation will be short-lived and the US economy still requires support as it recovers from the Covid-19 pandemic.

In the BofA survey, investors signal they agree with Fed chairman Jerome Powell’s assessment of rising prices. Of the respondents, 72 percent say inflation is ‘transitory’, compared with 23 percent who believe it is permanent.

A net 64 percent of investors still say they expect higher inflation over the next 12 months, although that is down 19 percentage points from the May edition of the survey.

Investors are also feeling positive about any upcoming correction in US stocks: more than half (57 percent) of respondents say any pullback in the S&P 500 over the next six months will be less than 10 percent.  

The research suggests that initial moves by the Fed to lift interest rates – something not expected until 2023 – would not be a negative for stocks, but continued rises would eventually trigger a sell-off.

‘Nobody believed rates at 1.5 percent would cause an equity correction,’ write BofA analysts. ‘But the move from 1.5 percent to 2 percent is critical as a large majority of investors now think rates [of greater than 2 percent] would be detrimental for stocks.’