The Sentiment Reset We’ve Seen

For the past two weeks, when assessing the landscape of tariffs and volatility, we have counseled readers that fear is in the marketplace—a shorthand way of saying markets reflect and have been pricing in deep tariff pessimism. 

When we observe that something is probably priced to a very large degree, it is kind of a fine line to walk. Not because we doubt our reasoning, but because it can risk sounding dismissive if there is no tangible evidence. We can show you rock-bottom sentiment surveys and fearful headlines, but without concrete evidence of shifting portfolio positioning, it is always a bit of a dot-connect between the anecdotal evidence of fear and market volatility.

Which is where fund manager positioning reports come in. Though not a perfect indicator (nothing is), they give a good snapshot of how the news has affected actual trading decisions among a fairly wide swath of professional investors. It is the epitome of watching what people do, not just what they say. 

So we were quite keen to see what Bank of America’s latest Global Fund Manager Survey, published Monday, would show. The survey ran from April 4 – 10, the heart of stocks’ Liberation Day freakout and the monster rally after April 9’s partial tariff pause. And it shows fund managers took swift action.

One, they raised a boatload of cash. The overall 4.8% cash allocation isn’t high relative to other deep corrections and bear markets, but the increase since February is the fastest two-month jump since April 2020.^[i] That, you may remember, was the month after the COVID lockdown-induced bear market hit its low. Not that we are calling cash raises a contrarian indicator, but it is a good comparison point for the level of panic right now. Panic then proved overblown. Whether it does so now remains to be seen, but this speaks to the worst-case scenarios driving decision making today, creating room for positive surprise.

Also telling is what managers sold to raise cash: stocks, and primarily US stocks. Global and US equity allocations are at the lowest since mid-2023. The two-month slide in global stock allocations is also the biggest since April 2020, while the drop in US allocations in this same stretch is the largest on record.

Now, some of this stock positioning is a function of market movement, not outright selling. But the big move to cash speaks to a large amount of selling, as do the general sentiment portions of this survey. A plurality of fund managers—42%—now expect gold to be the top-performing asset this year, dethroning global stocks, which topped expectations in March but now win the confidence of just 11% of managers.^[ii] 90% expect “stagflation” this year, bringing economic sentiment near where it was entering 2023. Most managers say they are cutting risk, whatever that even means (it is always subjective, friends), but it speaks to the environment.

None of this is predictive, of course. It is a snapshot of how one class of investors reacted to news in a single, wild week. But it shows how feelings and the news affected trading decisions, which colors in the pencil sketch of what everyone surmises markets have moved on. It is a way to see how this correction and its widely known, discussed and chewed over story—tariffs—swung sentiment suddenly. From here, stocks will move most on the gap between these expectations and how reality unfolds over the next 3 – 30 months. When sentiment is this low, it is generally an easier bar to clear. That doesn’t mean stocks skyrocket from here or that it is all smooth sailing if a rally is already underway. But it suggests there is little negative surprise power left at this point.