A historic week, institutions' choice: go long on gold!

As the tariff war reached an unprecedented peak last week, global financial markets experienced a dramatic upheaval.

On the 15th, Bank of America released its global fund manager survey report, which was conducted from April 4 to 10, coinciding with the most turbulent week in financial markets, capturing a sharp shift in investor sentiment. The report shows that investor confidence in the global economy has fallen to its lowest point in nearly 25 years.

Amid this pessimistic sentiment, market capital flows underwent a sharp reversal, with investors withdrawing from the stock market on an unprecedented scale, reducing global stock allocation to its lowest point since July 2023, during which U.S. stocks experienced the largest two-month decline in history.

Expectations for an economic recession have soared to the highest level in 20 years, with as many as 82% of surveyed fund managers anticipating a weakening global economy, marking a historical high in 30 years. Among them, 42% of investors believe that a global economic recession is imminent, while the probability of a "hard landing" has sharply risen to 49%.

The specter of stagflation is also looming, with global inflation expectations reaching their highest level since June 2021.

Most concerning is that as many as 80% of respondents view "the trade war triggering a global economic recession" as the biggest current "tail risk," which is the highest concentration of "tail risk" in the 15-year history of the survey. Against this backdrop, "going long on gold" has replaced the "long on Mag7" strategy that lasted for 24 months, becoming the most crowded trade currently.

The market turmoil triggered by this tariff war may just be beginning, and its long-term impact could be more profound than many expect, as the market prepares for a more challenging macro environment.

Key charts from the Bank of America report:

Exiting Stocks, Holding Cash

• Record number of investors plan to cut U.S. stock positions

• Record outflows from U.S. stocks over two months

The allocation to U.S. stocks has dropped to a low of 36%, the lowest allocation since May 2023. Since February 25, the allocation to U.S. stocks has decreased by 53 percentage points, marking the largest decline in two months.

• Stock allocation at the lowest since July 2023

Investor allocation to global stocks fell to a low of 17% in April, the lowest allocation since July 2023.

Since February 25, stock allocation has decreased by 52 percentage points, the largest two-month decline since April 2020.

• Investor risk appetite has also fallen to a two-year low

When asked about their current risk appetite... a net 46% of investors indicated that they are taking on lower-than-normal levels of risk, the lowest level since May 2023.

• Cash surged to 4.8%, the largest increase in nearly two months since April 2020

Bank of America FMS cash levels rose to 4.8%, an increase of 125 basis points since February 25, marking the largest two-month growth since April 2020.

The average cash level in the nine peaks before 1999 (May 2000, February 2001, October 2001, March 2003, December 2008, June 2012, October 2016, April 2016, and October 2022) was 6.2%.

Pessimism spreads, recession expectations surge

• Global FMS investor sentiment falls to the lowest level on record

The FMS sentiment measure, based on cash levels, equity allocation, and global growth expectations, dropped from 3.8 in March to 1.8 in April, the lowest level since October 2023.

The current sentiment level is the fifth lowest on record (only behind 2001, 2009, 2019, and 2022), with April's global FMS data causing the BofA bull-bear indicator to fall from 4.8 to 4.5.

• 49% expect a "hard landing," 37% a "soft landing," and 3% "no landing"

Expectations for a "hard landing" surged to 49% in April (up from 11% in March), while expectations for a "soft landing" fell to 37% (down from 64%), and "no landing" dropped to 3% (down from 19%).

• Global growth expectations hit a 30-year record low

Expectations for the global economy fell to a historical low in April, with 82% anticipating a slowdown in global growth.

• Recession expectations rise to the highest level in the past 20 years 42% of investors expect a global economic recession, the highest level since June 2023 and the fourth highest in the past 20 years. This marks a significant shift from last month when 52% believed a recession was unlikely.

• The trade war triggering a global economic recession is seen as the biggest "tail risk"

According to 80% of investors, the trade war triggering a global economic recession is viewed as the biggest tail risk, representing the highest concentration of "tail risk" in 15 years.

• Historical evolution of the global "biggest tail risk"

Since 2011, the main concerns of investors have included Eurozone debt, quantitative tightening, and trade wars, global coronavirus, inflation, and central bank interest rate hikes; now it is geopolitical issues, trade war 2.0, and economic recession. The biggest tail risk is "the trade war triggering a global economic recession," accounting for 80%.

"Long on gold" is the most crowded trade, with high expectations for "dollar depreciation"

• "Long on gold" is currently the most crowded trade

In terms of crowded trades, "long on gold" (49%) has ended the 24-month winning streak of "long on mag7" (49%).

• 42% believe gold will perform best in 2025

Gold is also expected to perform best in 2025, with 42% of investors (up from 23% in March) believing gold will perform best, while "global equities" dropped to fourth place at only 11% (down from 39% in March).

• Gold valuation versus gold price

34% of FMS investors believe gold is overvalued (the highest in 5 months).

• Expectations for dollar depreciation reach the highest level since May 2006

61% expect the dollar to depreciate in the next 12 months, the highest level since May 2006.

• "American Exceptionalism" has peaked

According to 73% of investors, the theme of "American Exceptionalism" has reached its peak.

• Changes in investor allocations in April

Allocations to bonds, cash, and defensive stocks (utilities, healthcare, and consumer goods) have increased, while allocations to industrials, equities, and the Eurozone have decreased.

• Historical evolution of the global FMS "most crowded trades"

Since 2013, from high-yield debt, long U.S. Treasuries, long quality bonds, long tech stocks, long emerging markets, long U.S. Treasuries, long U.S. tech and growth stocks, long Bitcoin, long commodities, long tech stocks, long commodities, long U.S. dollars, to long U.S. stocks Mag7.

"Long gold" is considered the most crowded trade (49% of investors), followed by Mag7 (24%), and long EU stocks (10%).

Is stagflation unavoidable? How many times will the Fed cut rates?

• How investors describe the global economy in the next 12 months

90% of FMS investors expect "stagflation" (below trend growth and above trend inflation), the highest level since November 2022.

5% of investors expect "stagnation" (below trend growth and below trend inflation), while only 1% expect "prosperity" (above trend growth and above trend inflation), and 0% expect "Goldilocks" (above trend growth and below trend inflation).

• Global inflation will be higher in the next 12 months

57% of investors expect global CPI to be higher in the next 12 months... the highest inflation expectations since June 2021. Inflation expectations surged by 50 percentage points month-on-month, marking the largest monthly increase since March 2022.

• Global corporate profit growth will deteriorate

80% of investors expect global profits to deteriorate in the next 12 months, with global profit expectations declining by 91 percentage points over the past two months, reaching the lowest level since October 2022.

Investors have turned negative on the U.S. profit outlook, with 28% believing the U.S. profit outlook is pessimistic, the highest level since November 2007

• Federal Reserve Rate Cut Expectations

Regarding the Federal Reserve rate cut expectations, 1.34% of investors expect 2 rate cuts; 25% indicate there will be 3 rate cuts; 16% indicate there will be 4 or more rate cuts; 13% indicate there will be 1 rate cut; and 9% indicate no change.

• U.S. Tax Cuts Will Not Boost U.S. Growth in the Second Half of 2025

On the policy front, 63% of investors do not believe that U.S. tax cuts will boost U.S. growth in the second half of 2025.

• China's Stimulus Measures Will Boost Growth in the Second Half of 2025

On the other hand, 63% do expect that China's economic stimulus measures will accelerate China's growth in the second half of 2025