Bank of America: Inflation Replaces Covid-19 As Investors’ Worst Nightmare

According to the latest monthly survey by Bank of America, the coronavirus pandemic is no longer the most significant tail risk for investors.

The pandemic seems to have been replaced with soaring inflation, which has become the market’s biggest worry.

Inflation Becomes Biggest Threat

For the first time since February 2020, Coronavirus slipped from the major spot of concern as investors begin to get over the pandemic's adverse effect.

Inflation now poses the biggest tail risk. Tail risk is a market situation statistically unlikely but could cause the most damage. This was revealed in the summary of the survey shared on Twitter.

37% of respondents cited inflation as the biggest challenge, followed by 35% who chose taper tantrums or sharp reactions in the bond market. This is in light of the Federal Reserve unexpectedly pulling back on its monthly asset purchases.

The survey polled 225 fund managers with $645 billion in assets under management between March 5 and 11, 2021.

Another 15% chose coronavirus being the third-biggest threat, specifically the coronavirus vaccine, which is already being rolled out.

The fear of inflation is fueled by the trillions of dollars the U.S Government injected into the system to pad the economy post-covid-19. President Joe Biden signed the $1.9 trn stimulus package into law last week.

While this is necessary to aid the recovery process, investors are concerned with the ballooning levels of debt and the US dollar's debasement.

Bitcoin Pushed Back To Second Despite Recent Surge

The latest Bank of America fund manager survey also shows that Bitcoin is still the second-most crowded trade. Long tech or technology stocks happen to be the number one most crowded trade for the second straight month.

Tech stocks regained the number one spot or most crowded trade in mid-February, effectively pushing Bitcoin back into the number two slot, having been the most crowded trade in January.

Last week, Bitcoin shot up to a new all-time high of $61,781. Before Bitcoin’s surge early this year, investments in technology stocks were the most preferred trade throughout the final quarter of 2020. Presently betting on a Bitcoin rally remains one of the hottest trades.

Even as investors continue to bet on the technology sector, 55% of the fund managers interviewed believe that the U.S. equities market is in the later stages of its bull run. Only 25% of investors are convinced that stocks have much more room to run.

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