• Stagflation remains the dominant scenario: 49% of investors expect weak growth with high inflation over the next 12 months, up from 47% in July.
  • A notable minority still sees a boom: 43% anticipate above-trend growth, the highest level since February 2022.
  • Growth optimism is fading: only a net 14% expect stronger global growth, down from 21% last month.

Stagflation Fears Persist

Bank of America’s latest fund manager survey shows that nearly half of investors are bracing for stagflation—a toxic mix of sluggish growth and sticky inflation—over the coming year. The reading, which rose to 49% from 47% in July, underscores the persistent anxiety about the global economy’s ability to shake off its malaise.

Yet, a surprisingly resilient 43% of respondents still expect an economic boom, the highest proportion since February 2022. That optimism, however, is waning. The net share of investors expecting stronger global growth has slipped to 14%, down from 21% in the previous month.

A Divergent Outlook

The widening gap between stagflationists and boom believers highlights a market that is deeply divided. While the possibility of a boom keeps some risk appetite alive, the prevailing stagflation narrative has significant implications for central banks and asset allocation. Persistent high inflation with weak growth could force policymakers into a delicate balancing act, potentially leading to prolonged monetary tightening in some regions or premature easing in others.

For investors, this environment could spark volatility across asset classes. Sectors that typically thrive in a booming economy might underperform, while defensive plays and inflation hedges could gain favor. Real income is also at risk as wages fail to keep pace with price rises, potentially dampening consumer spending and further undermining growth.

The survey, which polled fund managers globally, reflects a cautious mood. One portfolio manager quipped, "We’re all hoping for a boom, but bracing for stagnation. The data doesn’t give us much reason to be overly optimistic," echoing the survey’s mixed signals.

Looking Ahead

As the market digests these findings, the coming months will be crucial. Will the boom camp prove prescient, or will stagflation become the defining theme of the next year? The answer likely hinges on policy responses and geopolitical developments. For now, investors are hedging their bets, staying diversified, and keeping an eye on inflation data and central bank signals.

This article was updated to reflect that the net growth expectations figure declined from 21% to 14%, compared to an earlier version that incorrectly stated the jump from 47% to 49% was the only notable change.