Global fund manager sentiment deteriorated sharply in March 2026, with geopolitical tensions and inflation expectations returning as primary market concerns, displacing AI bubble risks as the top tail risk. Meanwhile, private credit is now viewed by a record proportion of respondents as the most likely source of a systemic credit event.

According to Bank of America's March Global Fund Manager Survey, the overall sentiment indicator plunged from 8.2 to 5.6, hitting a six-month low. Concurrently, cash allocations surged from 3.4% to 4.3%, marking the largest monthly increase since the COVID-19 market shock in March 2020. The cash rule, which previously triggered a contrarian "sell signal," has now returned to a neutral range.

Strategist Michael Hartnett noted that current pessimism is sufficient to support shorting crude oil if prices exceed $100 per barrel, shorting the U.S. dollar if the dollar index surpasses 100, buying U.S. 30-year Treasuries when yields reach 5%, and accumulating positions in the S&P 500 if it declines to 6600 points.

The survey, conducted from March 6 to 12, included 210 fund managers overseeing a combined $589 billion in assets. Despite the significant cooling in sentiment, various positioning indicators remain far from "extremely bearish" levels—current equity allocations and global breadth metrics do not yet show the extreme signals typically seen at market bottoms, suggesting that an ideal tactical entry point for stocks and credit assets has not yet materialized.

Sentiment Shift: Growth Expectations Collapse, Inflation Fears Resurface A reversal in macroeconomic expectations was the most striking change in the survey. The net percentage of respondents optimistic about global growth plummeted from 39% to 7%, the sharpest monthly decline on record. At the same time, inflation expectations rebounded strongly—a net 45% of participants now expect global consumer prices to rise over the next 12 months, up from just 9% the previous month.

Rising inflation expectations directly dampened interest rate cut forecasts. The net proportion anticipating lower short-term rates fell from 46% to 17%, the lowest since February 2023. Expectations for a steeper yield curve also cooled significantly, with a net 56% predicting a steeper curve for 3-month to 10-year U.S. Treasuries, down from 80% last month.

Perceptions of the global economic outlook also shifted structurally. Regarding macroeconomic scenarios, 51% of respondents now expect "stagflation" (below-trend growth with above-trend inflation) over the next 12 months, up from 42% last month. Those forecasting "boom" conditions (high growth with high inflation) declined from 36% to 29%. Nevertheless, hard landing expectations remain exceptionally low—only 5% predict an economic hard landing, while 46% expect "no landing" and 44% anticipate a soft landing, with "no landing" remaining the consensus view for three consecutive months.

Tail Risk Rotation: Geopolitics Tops List, Private Credit Alarms Sound Market perceptions of risk sources have shifted markedly. Regarding the "biggest tail risk," 37% cited geopolitical conflicts as the primary threat, surging from 14% last month. The previous top concern, "AI bubble," dropped to just 10%. Tensions related to Iran were identified as a key catalyst driving this sentiment shift.

In assessing systemic credit risk sources, 63% identified private credit as the most likely trigger for a systemic credit event, a record high in the survey's history. Concurrently, credit default risk indicators jumped to their highest level since April 2025, with a net 46% viewing default risks as above normal, compared to 17% last month.

Other financial stability indicators also showed broad weakening. The survey's financial market stability risk gauge rose from -1.8 to 1.2, with six of seven risk factors deteriorating relative to January—covering emerging market risks, credit risks, business cycle risks, monetary policy risks, counterparty risks, and geopolitical risks. While liquidity conditions remain positive overall, the net percentage describing liquidity as favorable fell to 47%, down significantly from a peak of 66% two months ago and marking the lowest reading since May 2025.

AI Fever Cools: No Longer Top Risk or Most Crowded Trade AI-related assets saw diminished prominence in the survey. Regarding whether AI stocks are in a bubble, 51% said no bubble exists while 38% considered them bubbly. Concerns over excessive AI capital spending also eased—the net percentage viewing corporate investment as excessive declined from a record high of 33% to 22%.

Regarding AI's expected impact over the next 12 months, respondents believe its primary effect will be driving corporate earnings through productivity gains (27%), followed by commodity inflation from AI infrastructure build-out (26%). Another 22% expect AI to create labor market deflationary pressure through increased unemployment.

From a crowding perspective, the "long AI/Magnificent Seven" trade has largely faded—only 9% now consider it the most crowded trade, down sharply from last December's peak of 54%. "Long gold" and "long global semiconductors" now share the top spot as most crowded trades, each receiving 35% of votes. Notably, contrarian trade logic suggests that if Iran tensions ease, underweight positions in the Magnificent Seven, consumer stocks, and Chinese equities could outperform still-overweight positions in emerging markets, Japan, semiconductors, banks, and industrials.

Asset Allocation: Shifting from "Boom" to "Stagflation," Commodity Exposure Soars At the asset allocation level, fund managers are reorienting portfolios from "boom" to "stagflation" themes. March saw increased exposure to Japanese equities, healthcare, and cash, while discretionary consumer stocks, European equities, and banks saw reductions.

In absolute positioning terms, the most overweight asset classes are emerging market equities, healthcare, equities overall, and commodities. The most underweight are bonds, discretionary消费, and the U.S. dollar. Commodity overweight positions rose to a net 34%, the highest since April 2022, standing 2.1 standard deviations above historical averages—indicating strong inflation hedging demand.

In regional equity allocation, emerging market overweight positions reached a net 53%, the highest since February 2021 and 1.6 standard deviations above historical means. Japanese equities shifted dramatically from a net 1% underweight last month to a net 14% overweight. In contrast, U.S. equities remain net 17% underweight, while discretionary消费 stocks hit a net 27% underweight—the lowest since December 2022.

Political Variables: "Blue Wave" Expectations Rise, Oil Price Forecasts Lag Spot Political expectations for the 2026 U.S. midterm elections are shifting subtly. While 54% expect Democrats to control the House with Republicans holding the Senate, the proportion forecasting a Democratic sweep (controlling both chambers) has risen from 11% to 28% over two months, indicating changing political risk pricing.

Regarding gold, as prices continue climbing, a net 38% now view gold as overvalued, up from 31% last month. Yet "long gold" remains tied as the most crowded trade, suggesting safe-haven demand and inflation hedging needs continue supporting prices despite valuation concerns. Dollar positioning shows a net 24% underweight, slightly narrower than last month's 28%, with a net 46% considering the dollar overvalued.

In commodity markets, fund managers' oil price projections significantly lag spot prices. Only 11% expect Brent crude to exceed $90 per barrel by year-end (versus approximately $102 during the survey period), with a weighted average forecast of $76—implying about 26% downside and reflecting widespread skepticism about the sustainability of geopolitical risk premiums.