Portfolio Managers Think Inflation is Now the Top Risk

Just over a year since coronavirus transformed the world upside down, investors are starting to get over it. Inflation now has become the biggest tail risk that could cause the most damage.

COVID-19 fears shook Wall Street to its core in March 2020. The Dow Jones Industrial Average crashed almost 3,000 points a year ago today.

Flash forward 12 months, and the health crisis is not over. However, investors are confident it will soon be.

For the first time since the pandemic started, the coronavirus is no longer the No. 1 fear among portfolio managers studied by Bank of America.

Significantly, experienced investors are now concerned that the economy could rebound so rapidly that it overheats.

Inflation is now the top risk for portfolio managers, according to Bank of America. Moreover, the second most prevalent concern is taper tantrums, which happen when markets freak out over rising bond yields.

The findings underscore how drastically the situation has changed throughout 2020 year. Confidence is increasing because of vaccines’ rollout, easing health safety restrictions, and unprecedented support from the federal government.

According to Bank of America, investor sentiment is unambiguously bullish.

Goldman Sachs anticipates the U.S. economy to be 8% larger at the end of 2021

U.S. stocks rebounded swiftly from the COVID pandemic. The Dow Jones Industrial Average bottomed at 18,592 on March 23. Significantly, the index is up a staggering 77% since then. Meanwhile, the Nasdaq has doubled over that span.

Goldman Sachs is now calling for the U.S. economy to register China-like GDP growth of 7% in 2021. That would be the swiftest pace for America since 1984. Furthermore, Goldman Sachs anticipates the U.S. economy to be 8% larger at the end of 2021 compared to last year. Significantly, it would be the swiftest GDP growth unseen since 1965.

It has to be mentioned that nearly half of fund managers surveyed by Bank of America now anticipate a V-shaped recovery, up from just 10% who predicted that in May last year.