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The S&P 500 would need to sink into a bear market before the Federal Reserve would ride to the stock market's rescue, and would require the broad-equity index sliding back to a level not seen in more than a year, according to Bank of America's latest fund managers survey released Tuesday.
About 30% of respondents to the February survey said the S&P 500 would need to fall to 3,698 for a so-called "Fed put" to materialize. That level represents a 16% drop from Monday's close of 4,401.67. It's also an area the index hasn't been in since December 2020. A Fed put is the idea that the US central bank would fashion monetary policies to end sharp declines in the stock market.
The index this year through Monday's session has dropped 7.6% and has briefly dipped into a correction, or a 10% fall from a recent high. Stocks have been slammed down as investors price in expectations for the Fed to implement multiple interest-rate increases to cool down inflation. Another 16% decline would push the index firmly into a bear market, or a 20% fall from a recent high. The index in early January hit an all-time of 4,818.12.
Stock market sentiment is bearish "but not extreme bearish" as only 30% of money managers expect a bear market in 2022 while 66% do not, said BofA. Bearish views are driven by fears of rate hikes and slower economic growth, it said.
Fund managers have expressed bearish sentiment by rotating into cash, with that allocation rising to 5.3%, the highest rate since May 2020 when investors were digging out of a stock rout stoked by the unfolding COVID-19 pandemic. The February report showed money managers fled out of tech stocks, leaving net allocation to that sector at the lowest since August 2006.
BofA said 314 respondents who manage $1 trillion in assets participated in its survey conducted between February 4 and February 10.
