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Bank of America survey: Recession, debt ceiling, and tech are key economic charts

Yahoo Finance markets reporter Josh Schafer breaks down the three most important charts for the economy from the Bank of America survey, including recession concerns, the debt ceiling, and tech.

Video transcript


RACHELLE AKUFFO: A souring mood on Wall Street. The sentiment among fund managers deteriorated to the most bearish this year. That's according to Bank of America's latest survey. 65% of survey participants are now expecting a weaker economy. The 25 page survey detailed key findings on the state of the economy. But don't worry, we're here so you don't have to study the whole report. Yahoo Finance's Josh Schafer has covered with a three most important charts. Hey, Josh.

JOSH SCHAFER: Hey, Rachelle. So we got the spark notes here, right? And we're going to start with negative sentiment. Let's start with recessions. Investors are still expecting a recession. 47% say they expect a recession in the next 12 months. That's actually down from 48% last month, but still you can see historically very high.

And the key thing to know with this expectation is many strategists have pointed to the fact that since of recession is in some ways so baked in, it'll be interesting to see how that actually plays out for stocks. A lot of people already expecting a recession. So you could argue maybe that's already potentially priced into the market. Something that's not priced into the market though that people are still focused on has been the debt ceiling. And investors right now just don't seem that worried about it, Rachelle. So respondents here we. Should note this came out May 11th this was May 5th through May 11th. It came out today, but that's when they were surveyed.

And 71% said they are not worried about the debt ceiling as of now and they are confident that ahead of that June 1 date there will be a resolution. Now updates from Washington today do not indicate that, but it's been interesting to watch what's been happening in stocks. You can see when you take a look at the S&P 500 that has not-- there has been essentially no worries, because historically what we're looking at here is a 2011 chart. That was when debt ceiling worries really took hold. Look at what happened to the S&P 500.

So until we see something really downturn, Rachelle, it does not look like markets are pricing in a debt ceiling crisis. Should point out this peak to trough here was nearly 20% in 2011. So there is concern if this keeps going on it may not be good news for markets.

Final chart I have for you today is on tech. Investors still loving tech loving tech as much as they've loved tech since 2020. Now, what I really want to point out here so this what you're looking at is a spread between the short of US banks and the long of big tech. So you can see when the numbers are down here in big ways that means more investors are long big tech than long banks. Now what happened here that's interesting, Rachelle, is in 2020 you could see investors were very long tech. In 2021 the XLK popped over 30%.

Let's go to 2016. Investors were very long tech. 2017, a great year for the XLK. The same thing played out in 2011. Now when you look at the XLK already this year, tech has obviously rallied to start the year. So you sort of wonder, is the rally already baked in? Has it already happened? You can see the XLK they're up already 22%.

So while we do have tech investors or investors long tech right now, I am curious to see if that might already be priced in and this might be the end of what has been the rally in those years past. But again, three fun charts to sort of see where we're at right now. Interesting to see what happens with that debt ceiling crisis.

RACHELLE AKUFFO: Indeed. Got a lot of moving parts there. Great analysis there from our very own Josh Schafer. Thanks so much.