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“Investors remain bearish, with growth and profit expectations plummeting this month,” Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, said in a statement on the release of Merrill’s January fund manager survey.

“Even so, their diagnosis is secular stagnation, not a recession, as fund managers are pricing in a dovish Fed and steeper yield curve.”

Merrill conducted the latest survey in early January among 234 panelists with a total of $645 billion in assets under management.

Investors’ expectations for global GDP growth continued to fall in January, as net 60% of survey participants thought global growth would weaken over the next 12 months. This was seven percentage points more than in the December survey and the worst outlook on the global economy since July 2008.

Even so, only 14% of fund managers said they expected a global economic recession this year; instead, they were calling for secular stagnation in the next two to three quarters.

Net 19% of those surveyed said they expected the global consumer price index to rise over the next year, down 51 points from December. This was the second biggest two-month drop in inflation expectations on record, according to Merrill, and a massive reversal from the recent peak of net 82% in April.

Investors’ average cash balance ticked up slightly in January to 4.9% from 4.8% last month. The fund manager cash rule has now been in “buy” territory for 10 months.

The cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5%, a contrarian sell signal is generated.

The January survey found that investors’ worries about the credit cycle continued to climb, as net 48% of fund managers considered corporate balance sheets overleveraged.

Merrill said that for the first time since 2009, corporate leverage was fund managers’ biggest concern. Half of survey participants said corporates should use cash to improve balance sheets, while 39% said they should increase capital expenditures and 15% return cash.

Net 52% of investors said they expected global profits to deteriorate in the next year, a major reversal from 12 months ago when net 39% said profits would improve. This was the bleakest outlook on profits since 2008, according to Merrill.

For the eighth month in a row, a trade war topped the list of biggest tail risks, cited by 27% investors, though concerns have waned since summertime highs. Quantitative tightening and a slowdown in China were also top of mind for investors, each cited by 21% of respondents.

Long U.S. dollar was the most crowded trade in January, according to 21% of fund managers, just ahead of 19% who said long FAANG (Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet) + BAT (Baidu, Alibaba and Tencent) and 17% short emerging markets.

Merrill noted, however, that crowded positioning in the long greenback trade appeared vulnerable as investors said the U.S. currency valuations were at their highest level since 2002.

In contrast, it said, emerging market currency valuations were at the lowest level since the survey question began in 2004.

Emerging market equities allocations surged 11 percentage points to 29% overweight, up from 10% underweight in September, making the region the top choice among fund managers in the survey.

Allocations to U.S. equities fell five points to just 1% overweight, while eurozone equities declined four points to 11% underweight, the biggest underweight since August 2012.

Japanese equities took their biggest one-month hit since April 2016 as allocations dropped 13 points to net 1% underweight, the first underweight in Japan in 38 months.

U.K. equities remained the major underweight among survey participants, at 38% underweight, as the fast-approaching March 29 Brexit deadline renewed uncertainty.

— Check out Beware These Early Warning Signs of an Upcoming Recession on ThinkAdvisor.