Talk about pessimism. Bank of America’s monthly Global Fund Managers Survey shows “investor sentiment is close to levels of pessimism seen below 20 years ago,” according to the survey. More than half (51%) expect weaker global growth. Sixty percent think interest rates will be lower 12 months from now – not higher. Global Fund Managers Survey Expect weaker global growth: 51% Inflation to be lower: 84% Lower rates in 12 months: 60% Source: BofA Fund Managers Survey The biggest worry of global fund managers for most of the past year is that “inflation will remain high,” but now that has changed. The biggest risk to the market – an often-watched measure of investor concern – has now shifted to “systemic credit events.” What is the biggest risk to the market today? Systemic credit event: 31% Inflation remains high: 25% Central banks remain hawkish: 15% Source: BofA Fund Managers Survey Where did the “systemic credit event” come from? Investors couldn’t agree more. The majority think of the US shadow banking system, but others mention corporate debt, real estate or even national debt. This pessimism is consistent with other investor sentiment surveys. Optimism among retailers is also not good. The weekly AAII Investor Sentiment Survey, out last Thursday, is at a 6-month high for bullish sentiment and is close to last September’s level, which is close to historical. Are you bullish or bearish on the next six months? Bullish 19.2% (average 37.5%) Bearish 48.4% (average 31.0%) Neutral 32.4% (average 31.5%) Source: AAII It’s bad news. The good news is that this is a sentiment indicator. Two rules about sentiment indicators: 1) they are contrarian indicators, and 2) they are most useful when the readings are extreme (like today). What this means is that all extreme sentiment has historically been associated with market fundamentals. Even the author of the BofA survey admits this: “The sentiments/positions revealed in the FMS this month are consistent with previous major markets.” The company also notes that other sentiment indicators (cash flow, private client asset allocation) are not yet in the “capitulation” area.