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Right on cue, when investors seemed to be at their most bearish and the outlook dismal, the stock market suddenly runs out of sellers and stocks rally. That has been the story so far in October, which got the traditionally strong fourth quarter off to a good start despite a mixed picture from the reported earnings results, with ‘big tech’ faltering. The backdrop of bearishness was in plain view after a miserable September and overall year so far in 2022. Sentiment on stocks and global growth among fund managers surveyed by Bank of America showed full capitulation, opening the way to an equities rally. The bank’s monthly global fund manager survey “screamed investor capitulation.” Market liquidity deteriorated significantly,” the surveys said, noting that investors have 6.3% of their portfolios in cash, the highest since April 2001, and 49% of participants were underweight equities. Nearly a record number of those surveyed said they expect a weaker economy in the next 12 months, while 79% forecast inflation will drop in the same period, according to the survey of 326 fund managers with $971 billion under management. While the stock market has reflected investors’ pessimism about the outlook for all of 2022, it seems prudent to point out that such periods of high cash in the past have often coincided with major market bottoms. (more…)