Bank of America Fund Manager Survey: Stock Market Frenzy Diminishes, the Market's Biggest Fear "Landmine" Has Changed!

Global fund manager sentiment plummeted in March 2026, with geopolitical risks and inflation expectations returning to market focus, replacing the AI bubble as the top tail risk. Meanwhile, private credit is viewed at record levels as the greatest systemic credit event threat.

According to Bank of America’s March Global Fund Manager Survey (FMS), the overall sentiment indicator dropped sharply from 8.2 to 5.6, the lowest in six months. At the same time, cash holdings rose from 3.4% to 4.3%, the largest single-month increase since the COVID-19 pandemic in March 2020. The previous cash rule triggering a contrarian “sell signal” has returned to a neutral zone.

BofA strategist Michael Hartnett noted that current sentiment is sufficiently pessimistic to support shorting oil if prices break $100 per barrel, shorting the dollar if the DXY index surpasses 100, buying US 30-year Treasury yields at 5%, and building positions on dips when the S&P 500 hits 6,600.

The survey, conducted from March 6 to 12 with 210 fund managers managing a total of $589 billion, shows that despite the significant cooling of sentiment, BofA’s positioning indicators remain far from “extreme bearish” levels—current stock allocations and global breadth indicators do not show the extreme signals typically seen at market bottoms, indicating that it is not yet an ideal tactical entry point for stocks and credit assets.

Sentiment Cold Snap: Growth Expectations Collapse, Inflation Worries Resurface

The most notable change in this survey is the reversal of macro outlooks. Optimism about global economic growth plummeted from a net 39% last month to a net 7%, the largest monthly decline recently. Meanwhile, inflation expectations rebounded sharply—45% of respondents expect global CPI to rise over the next 12 months, up from just 9% last month.

This surge in inflation expectations directly dampened rate cut expectations. The proportion expecting short-term rates to decline shrank from a net 46% last month to a net 17%, the lowest since February 2023. Expectations for continued steepening of the yield curve also cooled, with 56% expecting the 3-month to 10-year US Treasury yield curve to steepen, down sharply from 80% last month.

Views on the global economic outlook also shifted structurally. In macro scenarios, 51% of respondents now expect “stagflation” (below-trend growth combined with above-trend inflation) over the next 12 months, up from 42% last month; those expecting a “boom” (high growth, high inflation) fell from 36% to 29%.

Despite this, market pricing for a hard landing remains very low—only 5% see a recession, 46% expect “no landing,” and 44% anticipate a soft landing. “No landing” has been the consensus for three consecutive months.

Tail Risks Shift: Geopolitics at the Top, Private Credit Warning Elevated

Market risk perceptions have shifted notably. Regarding the “biggest tail risk,” 37% of respondents now cite geopolitical conflict as the primary threat, up sharply from 14% last month. The previously top-ranked “AI bubble” has fallen to only 10%.

Geopolitical tensions related to Iran are seen as a key catalyst for this shift.

In terms of systemic credit risk, 63% of respondents identify private credit as the most likely source of a systemic credit event, the highest in survey history. Additionally, March’s credit default risk indicator surged to its highest since April 2025, with 46% of respondents perceiving default risk above normal levels—up from 17% last month.

Other financial stability indicators also weakened across the board. The FMS Financial Market Stability Risk Index rose from -1.8 to 1.2, with six of seven risk factors worsening since January, including emerging markets, credit, business cycle, monetary policy, counterparty, and geopolitical risks.

Liquidity remains overall positive, but the net positive perception declined from 66% two months ago to 47%, the lowest since May 2025.

AI Sentiment Cools: No Longer the Biggest Risk or Crowded Trade

AI-related assets have significantly faded in prominence in this survey. Regarding whether AI stocks are in a bubble, 51% of respondents say no, 38% say yes. Concerns about excessive corporate capital expenditure on AI have eased—those worried about overinvestment dropped from a record 33% last month to 22%.

Respondents expect AI’s biggest impact over the next 12 months to be boosting corporate profits through productivity gains (27%), followed by inflationary effects from AI infrastructure spending on commodities (26%), and a potential labor market disinflation due to rising unemployment (22%).

From a crowded trade perspective, the “long AI / Magnificent 7” hype has largely faded—only 9% see it as the most crowded trade, down sharply from 54% in December. Currently, the most crowded trades are “long gold” and “long global semiconductors,” each supported by 35%.

BofA’s contrarian view suggests that in a scenario of easing tensions with Iran, underweight positions in Magnificent 7 stocks, consumer stocks, and Chinese equities, as well as in emerging markets, Japan, semiconductors, banks, and industrials, may outperform.

Asset Allocation: From “Boom” to “Stagflation,” Commodities Positions Surge

On the asset allocation front, fund managers are shifting their portfolios from a “boom” theme toward “stagflation.” This month, they increased holdings in Japanese stocks, healthcare, and cash, while reducing optional consumer, European stocks, and banks.

In absolute terms, the most overweighted asset classes are emerging market stocks, healthcare, overall equities, and commodities; the most underweighted are bonds, optional consumer, and the US dollar.

The commodities overweight has risen to a net 34%, the highest since April 2022, exceeding the historical average by 2.1 standard deviations, indicating strong inflation hedging demand.

Regionally, emerging market stocks’ overweight has increased to a net 53%, the highest since February 2021, above the historical mean by 1.6 standard deviations. Japanese stocks shifted from a slight underweight (-1%) last month to a net overweight of 14%.

In contrast, US stocks remain underweight at 17%, with optional consumer stocks at a net underweight of 27%, the lowest since December 2022.

Political Variables: Democratic “Blue Wave” Expectations Rise, Oil Price Expectations Significantly Below Current Levels

Politically, expectations for the 2026 US midterms are shifting. 54% of respondents expect a “Democratic control of the House and Republican control of the Senate,” but the share expecting a full Democratic sweep (both chambers) has risen from 11% two months ago to 28%, indicating market risk re-pricing.

Regarding gold, with prices continuing to rise, 38% of respondents believe gold is overvalued, up from 31% last month. However, “long gold” remains tied for the most crowded trade, showing that despite valuation concerns, risk hedging and inflation protection remain strong.

For the dollar, 24% of respondents are underweight, slightly less than 28% last month, with 46% viewing the dollar as overvalued.

In commodities, there is a notable gap between market prices and survey expectations. Only 11% expect Brent crude to exceed $90 per barrel by year-end (current price around $102), with an average forecast of $76, implying about 26% downside risk—reflecting skepticism that geopolitical premiums can be sustained.