Respondents signaled their selling spree helped fuel the stock market’s recent correction as they parked their money on the sidelines—mirroring Warren Buffett’s record $334 billion cash pile.

America’s most revered investor, however, gave a famous piece of advice in a letter to Berkshire Hathaway shareholders in 1968: “Be fearful when others are greedy, and greedy when others are fearful.”  Indeed, while BofA analysts led by chief investment strategist Michael Hartnett said dimming views about American stocks had driven a “bull crash” in sentiment, they indicated the speed and scale of the correction bodes well for the market going forward.

Nonetheless, there’s no doubt the 171 survey respondents, who manage roughly $425 billion in assets combined, have been spooked by President Donald Trump’s on-again, off-again tariff threats. In February, a net 2% of investors expected a weaker global economy over the next 12 months, meaning that a small majority of respondents were pessimistic at the time. That number has since ballooned to 44%—the worst single-month plunge in growth expectations aside from March 2020, or the onset of the COVID-19 pandemic in the U.S.  

Fund manager sentiment, BofA said, has been highly correlated with the performance of the S&P 500.

“Pessimism on global growth outlook is bad news for stocks,” the team wrote when the survey, conducted during the second week of the month, was released last week. 

After Trump’s election win in November, hopes the new administration would prioritize tax cuts and deregulation fueled a big rally for stocks. Instead, Trump has appeared fixated on the use of tariffs not only as a bargaining chip but also as a tool to address America’s trade deficit, resulting in massive uncertainty about U.S. trade policy.

In the BofA survey, 55% of fund managers said a trade war-induced recession is the biggest “tail risk” faced by the market—the most-cited factor since “COVID resurgence” in April 2020—followed by inflation forcing rate hikes by the Federal Reserve and concerns about the impact of Elon Musk’s Department of Government Efficiency, also known as DOGE.

Over 70% of respondents, meanwhile, said they expect a form of dreaded “stagflation,” or slowing growth and an uptick in inflation. None of the fund managers surveyed, however, are currently forecasting a true recession.

Investors get reason to cheer

It’s important to note, too, that surveys of investor sentiment may much better explain why stocks have recently sold off than signal where the market is headed. In one month, the average cash position of fund managers surveyed jumped 60 basis points to 4.1%. That marks the end of BofA’s contrarian “sell signal,” or a metric that suggests an opportunity to buy low when other investors are selling, and vice versa. 

That signal had initially been triggered in December, when the cash allocation of respondents fell below BofA’s 4% threshold. Since then, the Nasdaq Composite and S&P 500 have both entered correction territory by dropping 10% or more before recovering slightly. 

Clearly, managers have decided to rotate out of U.S. stocks, with a net 23% of investors going underweight, compared to a net 17% being overweight last month. The 40-point drop is the biggest in the history of the survey, and 69% of respondents said the theme of “U.S. exceptionalism“—or American equities outpacing the rest of the world—had peaked. Bullish expectations about the Chinese economy, meanwhile, have become the norm.

Still, BofA’s survey indicated investors still expect the Fed is on track to achieve a so-called “soft landing,” or lower inflation without inducing a recession, and believe the central bank will slash interest rates two to three times this year.

On Friday, the S&P ended a week in the green for the first time in a month. Investors received more good news over the weekend, with reports suggesting so-called reciprocal tariffs being announced on Apr. 2, which Trump ordered economic officials to custom design to basically every U.S. trading partner, will be relatively narrow in scope. The market cheered the news, with the S&P 500 rising 1.5% as of Monday afternoon.