Stock-Market Euphoria Fades as Investors Turn Bearish, BofA Says

Global investor optimism has waned, with the market mood declining to a six-month low in March according to Bank of America’s latest fund manager survey.

The survey showed a notable jump in cash holdings, reaching 4.3% of assets, the highest since March 2020. This shift reflects growing concerns over geopolitical tensions, including the war in the Middle East and uncertainty around private credit.

While investors are less bullish, they are not yet as bearish as during April's tariff turmoil. A majority remain unconvinced that the AI spending race is in a bubble.

Why the Move Happened

The survey highlights a shift in investor focus from the AI-driven optimism of previous months to broader economic risks. Concerns over the war in the Middle East have led to higher oil prices, with Brent crude flirting with $100 per barrel.

Private credit markets are also under scrutiny, with participants citing the potential for a systemic credit event for the eighth consecutive month.

Investors are most long on commodities since April 2022, with a net 34% overweight position. Emerging-market equities also saw a net 53% overweight, the highest since February 2021.

How Markets Responded

The market jitters have led to a reallocation of assets, with lower exposure to consumer discretionary stocks. The BofA Global survey, conducted between March 6 and 12, gathered data from 181 participants with $529 billion in assets.

The survey also noted a shift in investor positioning, with the highest allocation to commodities since 2022. This trend reflects a defensive stance as investors brace for potential economic shocks.

What Analysts Are Watching

Market strategist Michael Hartnett noted that while positioning is bearish, it is not yet at extreme levels seen during previous market downturns.

Investors are watching for any signs of a prolonged disruption in global energy markets, particularly from the Strait of Hormuz. Analysts at Standard Chartered also raised their 2026 Brent crude forecast to $85.50, citing the prolonged supply shock.

The geopolitical tensions and energy market uncertainty are also affecting emerging economies. The European Bank for Reconstruction and Development is considering support programs for businesses in affected regions.

Investors remain cautious about the long-term implications of the war in the Middle East, especially its impact on global energy and food supply chains. Analysts are also watching for any shifts in central bank policy, including the U.S. Federal Reserve's potential decisions.