More fund managers are slashing bonds to a record low, according to the latest BofA survey. Yahoo Finance's Julie Hyman, Brian Sozzi and Brian Cheung weigh in.

Video Transcript

JULIE HYMAN: Something else that gets a lot of attention from investors from market participants is the Bank of America Global Fund Manager Survey. And this survey this session around comes in and showing a lot less bullishness. Now, I would hesitate to call it bearish when you look at all of the components on it.

But bank of America characterizes this as the least bullish survey since October of 2020, in part because cash levels at fund managers is going higher, although they're still-- one of the interesting things about this, Brian Cheung, is that even as the fund manager surveyed are less optimistic about global economic growth, they're pretty much holding the line on their stock allocation. So there's a little bit of a disconnect.

BRIAN CHEUNG: Yeah, well I mean, I think this is just a function of the weird dynamics that we have in this recovery, where these fund managers who, by the way, have done extremely well probably during the course of 2021. I mean, if you threw a dart at the S&P 500 over the course of this year, you probably have done pretty well. So I think that when you are shored up with the amount of capital that you have now, you can have both of those stories true, right?

Where you have higher cash levels. But at the same time, are getting more bullish about getting into risk assets. And I think that's what this fund manager survey underscores. Now, that's not to say that this isn't an uncertain environment. I think, most of the people that have come onto our program have said something to that effect. The biggest risks as described by the fund manager survey in order our number one, inflation.

Number two, China, and the number three, COVID. But the gap between the survey numbers that said COVID versus China as a as a big risk was actually a pretty wide chasm. So the big story from the fund manager survey is really the strategy at least for right now appears to be long equities, short bonds, long the banks, short the utilities. And I just think that this is kind of very much in line with the same thesis that we heard from Morgan Stanley's Mike Wilson with regards to that fire and ice, although he's expecting what could be as steep as a 20% correction or downfall in the market because of some of that rotation that we've seen within the equity sector.

But this Bank of America Fund Manager Survey seems to point to the same attributes of this market dynamic, but saying that isn't necessarily going to cause a correction or a downturn. So very interesting to see people observing the same thing from different lenses with regards to maybe where the markets go next. I don't know if Brian's got any thoughts on that. But fire and ice, maybe not so.

BRIAN SOZZI: Well, I'll toss a grenade to the bulls on this one. I mean, I would say this report was absolutely alarming here. I'm just going to go right down it. Global growth expectations turn negative, net 6% in October, lowest level since March 2020. Global profit expectations, well, guess what? They also turn negative, too. Lowest expectations since May 2020.

Corporate profit margin expectations, according to the survey, continue to deteriorate. Joey, this was a disturbing read. It almost had me thinking how is the Fed going to hike rates at some point next year with an environment like this?

JULIE HYMAN: No way. First of all--

BRIAN SOZZI: A weak recession. What's going on here?

JULIE HYMAN: Only least 6% of investors say global growth is going to weaken over the next year. 6%, that's not a lot, right?

BRIAN SOZZI: Just doesn't fit-- I think it's a bullish narrative out there.

JULIE HYMAN: --if inflation is such a big concern, costs are going to continue to go up. We've been talking for months about a peak in margins. So why is it a surprise in this report?

BRIAN CHEUNG: The other thing, too, just to kind of separate the two people that are above me I think in the boxes right now is to just say and point out that a lot of these are comparative, right? I mean, we are seeing-- and I think this is a big story for why a lot of people are talking about this idea of stagflation, is because while it might be slower growth, that's the stag part of the stagflation bit, compared to the massive rebound GDP numbers that we've been getting in these initial quarters of this recovery.

So of course you would expect to see earnings slow, GDP growth slow, compared to the early metrics of quarter 1 2021 when the economy was reopening. That's what happens when you reopen a $21 trillion economy here in the United States. So I just feel like that could be a very interesting dynamic. Again, the comparisons, that year over year metrics are all over the place right now. That might be complicating things as well.

JULIE HYMAN: Yeah.

BRIAN SOZZI: Well, let me toss another one onto the barbie here, for you, Julie. 38% of investors think inflation is permanent. They're also seeing peak boom and growing stagflation concerns. Again, to me, this doesn't jibe with I think the bullish narrative we've seen in the markets over the past week.

JULIE HYMAN: I think it depends on what permanent is. I don't think anyone we've had on this show has said inflation increases are going to be permanent. Inflation cannot increase at this pace in permanent fashion, just by definition, that cannot happen.

Ships are not going to remain.

If it is indeed a supply shock driven inflation, and you've got ships that are out in the ocean who can't come in to deliver things, at some point that is going to work itself out. Now, if this at some point turns to demand-driven inflation only, I just don't think that that can be sustained at the same level that we are seeing the supply shock driven inflation. And by the way, to your point, Brian Cheung, which I think is a really good one, when we're talking about below trend growth as a definition for stagflation, and this is something we're going to talk to Liz Ann Saunders about in just a moment, what's the trend?

Is it defined by the last two years? Or is it defined by the trend growth of the prior decade? I would argue the latter. Doesn't make sense to compare a trend to a really unusual shock to the economy and recovery from it. That would be my argument as well. But again, we're going to continue this. I like Cheung in the role of peacemaker here. It makes sense.

BRIAN CHEUNG: I'll wear pinstripes like a referee next time.

BRIAN SOZZI: It fits you well.