Bears Are Everywhere, Merrill Investor Poll Finds

Bond allocations shot up 12 points to net 22% underweight, the highest level since September 2011, as dovish central banks, falling inflation expectations and a risk-off sentiment drove interest rates lower.

The June survey found that investors had rotated from cyclical plays — equities, banks, Europe and tech — into defensive ones — staples, utilities, bonds and cash.

A record net 60% of investors surveyed said the U.S. dollar was overvalued, a 16-point increase from last month.

Collapse, Plummet

Global fund managers’ growth expectations collapsed in the June poll, dropping by a record 46 points from last month, with net 50% investors expecting global growth to weaken over the next year.

A record high 87% of survey participants said the global economy was in the late cycle.

Investors’ interest rate expectations have also collapsed. Merrill reported that in just eight months, the percentage of investors expecting higher short-term yields had flipped from net 89% to -10%, the lowest level since 2008. As recently as November, 63% of fund managers expected higher long-term yields.

Fund managers’ expectations for global profits plummeted by 40 points to net 41% of investors surveyed saying they expected earnings per share to deteriorate in the next year, the second biggest one-month drop in optimism on record.

Only one in 10 fund managers said they expected higher global inflation in the next year, down 30 points month over month and the most bearish inflation outlook since August 2012.

In the June survey, long U.S. Treasuries was the most crowded trade — for the first time, Merrill noted — cited by 27% of investors. It replaced long U.S. tech at the top of the heap, cited by 26%. Eighteen percent of investors said long U.S. dollar was the most crowded trade, and 9% said short European equities.