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Fund managers see highest probability of recession since 2011

Illustration of a tug-of-war rope in the shape of a downward trending market line.
Illustration: Aïda Amer/Axios

Investors were nervous about a recession before Wednesday's selloff, with a third of fund managers polled in the latest Bank of America Merrill Lynch survey saying a recession is likely to happen in the next 12 months.

Why it matters: It's the highest recession probability since October 2011. However, a large majority of surveyed fund managers, 64%, says a recession is unlikely.

What's happening: Trade war concerns (51%) were the top risk cited by fund managers surveyed, followed by "monetary policy impotence," which remained in the second spot at 15%. A China slowdown and a bond market bubble round out the top 4, each at 9%.

  • Investors are certainly trading as if a recession is coming. U.S. Treasuries (32%) remained at the most crowded trade identified by fund managers, ahead of U.S. tech (19%), growth stocks (15%) and investment grade corporate bonds (12%).
  • “Investors are the most bullish on rates since 2008 as trade war concerns send recession risk to an 8-year high,” said Michael Hartnett, chief investment strategist. “With global policy stimuli at a 2.5-year low, the onus is on the Fed, ECB and PBoC to restore animal spirits.”

Methodology: Bank of America Merrill Lynch's surveyors spoke with 224 fund managers, who are collectively in charge of $553 billion worth of assets from Aug. 2 to Aug. 8.