Investors aren't convinced that the stock market rally can last, Bank of America survey shows

• Roughly 66% of fund managers say the recent upswing in stocks is a bear market rally, according to a BofA survey.
• Investors also say stagflation is still the most likely macro scenario in the next 12 months.

While the stock market continues a relentless march higher as inflation continues to cool, investors still aren't sure the broad rally will last, according to Bank of America's Global Fund Manager survey on Tuesday.

For now, a seemingly more dovish stance from the Federal Reserve has helped the Nasdaq and the S&P 500 gain 13.5% and 7.5% since the start of the year, respectively. This follows double-digit percentage losses last year.

Still, roughly 66% of investors say the recent upswing in equities is the result of a bear market rally, per the report, which surveyed investors between February 2 - 9.

That's despite more upbeat macro views. Pessimism on growth expectations is at its lowest in 12 months, 83% of fund managers expect inflation to ease over the next year, and the share of investors expecting a recession has declined to 24% from a peak of 77% in November.

BofA strategist Michael Hartnett indicated the biggest tail risk to the economy is persistent high inflation, which would most likely cause the Fed to raise rates at a more aggressive pace. On Tuesday, US consumer price data showed inflation slowed further but came in above forecasts.

According to investors, stagflation is still the most likely macro backdrop in the next 12 months, with 83% of participants expecting below-trend growth and above-trend inflation.

"Note that the probability of 'stagflation' scenario in next 12 [months] has hovered above 75% since May'22," Hartnett wrote. "Since 2008, no other macro outlook has been priced with such elevated probability; 'secular stagnation' probability now 8%, down from 11% last month…had jumped from 4% in Oct'22 to 11% in Jan'23."