You are currently viewing The manager’s pessimism reaches the level of 2008 in growth and earnings

The first survey of Bank of America fund managers since the Ukraine war began reflects the general pessimism that has gripped investors with the start of the invasion. The percentage of managers who expect the economy to be stronger in 12 months which has now fallen to the lowest since 2008, in the midst of the crisis of Lehman Brothers.

It is a clear majority of managers who expect a economic deterioration in the coming year, increasing the prospects of entering a recession to levels similar to those experienced during the most difficult times in recent history for the world economy.

In the same vein, with the growth of corporate profits in the coming year, pessimism is also spreading: the expectations of those surveyed have fallen to levels not seen since the worst moment of the Covid crisis, in 2020, and reach levels similar to those that were seen in the 2008 crisis, and in other moments of panic in the markets. Indeed, pessimism is greater for earnings now than at the height of the crisis in 2000.

stagflation is coming

The danger of entering a situation of stagflation is real; most experts believe that the world economy is heading in this direction, something that fits with the results of the survey it launched the Economist on March 8, which showed that 58% of analysts already contemplated the stagflation scenario for this year.

The managers surveyed by BofA confirm this: it is clear that for most analysts, stagflation is already the most likely scenario. Last month, only 30% of analysts expected it, but now 62% expect it, a level not seen since the Lehman crisis.

That managers already expect a scenario of stagflation as most likely fits with the general pessimism reflected in the survey results. The poor prospects for growth and profits are coupled with managers already discounting that inflation will not be transitory. It is the first time that this has happened, since the survey began to ask, in recent months, about the rise in prices. Now 51% of those surveyed believe that inflation will be permanent, compared to 39% who expected it in February.

It is also becoming increasingly clear to managers that we are in a phase close to the end of the business cycle. They have indicated this in their answers. In the past, this perception of managers has anticipated the arrival of a recession in a few years.

The consensus is still positive

With the estimates in hand, the truth is that analysts have not yet transferred to their numbers a possible deterioration in the profits of listed companies in the face of a stagflation scenario. In fact, they have raised their forecasts for practically all the European and US markets compared to what they contemplated at the beginning of the year. The joint benefit expected for the French Cac is the one that has increased the most in these two and a half months, 7.8% for 2022 and 6.6% for 2023, according to the consensus collected by FactSet. In the case of the German Dax, the Stoxx 600 and the S&P 500, the improvement is the same, 1.5% higher for this year and 1.2% for the next.

Only the Ibex 35 and the footsie 100 receive slight cuts for 2022. While for the Spanish selective the joint estimate for the 35 falls 0.7%, to 46,922 million euros, for the British the expected profits are now 1.6% lower than expected on January 1. However, the expectation for 2023 does improve for both: 1% for the Ibex and more than 9% for the Ftse 100.

By companies, the ones that have seen their net profit improve the most in the year are the German K+S and the Swiss Dufry. The first, the largest producer of potash for use in fertilizers and the second producer of salt, will earn 73% more in 2022 and 90% by 2023 if the expectations are met. In the case of the second, it is a retailer that it operates duty-free shops at airports, cruise ships and ports, among others, and will earn 59% more this year and 16.4% next year according to FactSet forecasts.

Expected rate hikes rise

The managers surveyed by Bank of America seem to be very clear that the crisis that is beginning to appear is going to be, above all, one of inflation. Although the outlook is now much more pessimistic on all fronts (growth, profits, inflation…), managers expect more rate hikes in the US this year: they have gone on to estimate 4.4 hikes, from 4 in the last month. Thus, they believe that the Fed will have to focus on fighting inflation, ahead of the recession.


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