Bank of America Rarely Contradicts: The More Pessimistic Investors Are, the Closer the Market Gets to a Bottom? Three Major Contrarian Indicators Signal a Buying Opportunity

Investor pessimism has now risen to its highest level in nearly a year, but Bank of America believes this may not be bad news. In its latest fund manager survey, Bank of America pointed out that if a ceasefire in the Iran war drives oil prices below $84/barrel, several current pessimistic signals in the market may instead serve as contrarian indicators for buying risk assets.

At first glance, Bank of America’s latest fund manager survey does not reveal an optimistic market atmosphere. However, the analyst team led by Michael Hartnett stated that under certain conditions, these pessimistic sentiment readings could turn into contrarian buy signals.

Bank of America noted that there were three negative sentiment indicators in the survey, each of which could form a "contrarian bullish" sign for risk assets. However, there is one important premise: a ceasefire in the Iran war must drive oil prices below $84/barrel.

Currently, oil prices are still hovering near the psychological level of $100/barrel. On Tuesday (April 14) at 10:00 (UTC+8), WTI crude oil futures fell as much as 8% during the day, now at $91.15/barrel. Brent crude oil fell below $92/barrel, declining over 3% intraday.

The survey shows that more than one-third of fund managers expect oil prices to fall back to $84/barrel by the end of the year; in contrast, just over a quarter of respondents expect oil prices to be above $90/barrel.

The following are the three major pessimistic signals that Bank of America believes can serve as contrarian buy indicators for risk assets:

1. Investor sentiment has clearly turned bearish

Overall fund manager sentiment has dropped to its most pessimistic level since June 2025.

Bank of America calculates the market sentiment index using cash levels, equity allocations, and growth expectations. The index fell from 5.6 last month to 3.7 this month.

Meanwhile, the proportion of cash held by fund managers rose to 4.3%, the highest since May 2025; global equity allocation fell to the lowest overweight level since July 2025.

2. Economic growth expectations have sharply declined

As the war continues, fund managers' expectations for economic growth have dropped sharply from March to April.

The survey shows that fund managers' expectations for global economic growth fell to their lowest level since August 2025, and the monthly drop was the largest since 2022.

3. Inflation expectations have surged

Investor expectations for inflation have also changed dramatically, rising to the highest level since May 2021.

Higher inflation expectations paired with lower growth expectations reflect growing market concerns about the risk of "stagflation".

More than three-quarters of fund managers expect stagflation, that is, high inflation combined with slowing growth; last month, those holding this view accounted for just over half.

In addition, among surveyed investors, the number regarding inflation as the greatest tail risk is also rising month by month.

However, most still do not anticipate a recession

Despite the clearly worsened growth outlook, Bank of America also notes that the majority of investors still do not expect the economy to fall into recession.

The survey shows that 70% of respondents consider the likelihood of a US recession to be low and see a "soft landing" as the baseline scenario for the current macroeconomic outlook.