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Global investors' cash levels dropped to 4.9% in May after having shot up to 5% in April from 4.6% the previous month, Bank of America Merrill Lynch reported this week in releasing its May fund manager survey.
Cash levels were still above the 10-year average of 4.5% and still in the "buy" zone, Merrill said.
The fund manager cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.
Expectations for faster global growth continued their downward spiral, falling to the lowest level in 27 months, with just net 1% of investors expecting the global economy to strengthen over the next 12 months.
Higher inflation remained the consensus view in May, with net 79% of investors expecting core CPI to rise over the next 12 months, slightly down from 82% last month.
Only 2% of investors surveyed expected a recession this year. The consensus view was that recession would begin in the first quarter of 2020.
Three-quarters of survey respondents thought that equities had not yet peaked. The majority said that would not happen until 2019 or beyond; only 19% thought the January rally marked the top.
"This month's survey presents good and bad news," Merrill's chief investment strategist, Michael Hartnett, said in a statement.
"Although cash levels remain high and growth optimism is at the lowest level in over two years, a majority of investors say there is room to grow in this equity bull market and don't see signs of recession anytime soon. Fund managers think the May rally can extend in the near term."
The survey was conducted from May 4 to May 10 among 223 panelists with a total of $643 billion in assets under management.
Thirty percent of survey respondents said the biggest tail risk to the market was a hawkish policy mistake by the U.S. Federal Reserve/European Central Bank.
Twenty-five percent cited a trade war as the top tail risk, well down from 38% in the April survey; and 12% expressed concerns about geopolitics causing oil to reach $100 a barrel.
