Investors haven't been this scared of the stock market since the shock of the 9/11 attacks, Bank of America says

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  • Investors haven’t been this scared of the stock market since 9/11, according to Bank of America.

  • The bank said average cash balances among its survey respondents increased to 6.1% from 5.7%.

  • A “record net 60% [of] investors [are] taking lower-than-normal risk,” Bank of America said.

Investors are turning increasingly bearish on the stock market amid elevated inflation readings and a tightening Federal Reserve, according to Bank of America’s most recent global fund manager survey.

One sentiment indicator tracked by BofA, the average cash levels of investors, just soared to levels not seen since the initial aftermath of the September 11 terrorist attacks.

“As recession concerns strengthen, investors reverted to cash, increasing average cash balances to 6.1% in September 2022, highest since October 2001 (post 9/11 shock), and well above the long-term average of 4.8%,” BofA’s Michael Hartnett said.

Additionally, a record net 60% of investors are taking lower-than-normal risk right now while stocks sit at a record underweight in portfolios, according to the survey. That lines up with AAII’s most recent investor survey results, which showed less than 20% of respondents were optimistic about the stock market over the next six months.

To some Wall Street analysts, that bearish investor sentiment serves as reason to believe that the stock market has more upside ahead as rising stock prices slowly win over reluctant investors that have been sitting on the sidelines in recent months and create new buying pressure.

But according to BofA, the extreme bearish sentiment readings doesn’t mean now is the time to buy stocks.

While the “short-term pain trade is up” and a combination of benign data and bearish sentiment means the S&P 500 could test resistance at 4,300, “we stay fundamentally and patiently bearish,” Hartnett said, adding that he expects any S&P 500 test of 4,300 to ultimately fail.

“Global growth expectations [are] near all-time lows; a net 72% [of respondents] expect weaker economy next year,” BofA said. The three biggest tail risks the stock market faces include sticky inflation, hawkishness from central banks, and geopolitical uncertainty.

All three of those fears were on display on Tuesday, as August’s higher-than-expected CPI report led investors to expect more rate hikes from the Fed while questions swirl around Russia’s potential response to a successful counterattack launched by Ukraine.

The S&P 500 plunged more than 3% on Tuesday, while the Nasdaq 100 dropped 4%.

Read the original article on Business Insider