Investors have turned increasingly pessimistic about the future and now widely expect a weaker global economy and deteriorating corporate profits, a notably bearish Merrill Lynch poll showed on Tuesday.
The monthly poll, however, still found few investors expecting a recession and suggested that the price of oil would have to rise higher and remain there for it to have a major negative impact on the global economy.
It found that fund managers now believe oil would need to average of $80 a barrel over 12 months for such an impact. It is currently averaging just under $68 a barrel.
A similar question last in December threw out a $69 a barrel average.
The overall tone of the July poll was that despite some calm returning to financial markets after the May-June turmoil, investors are preparing for a more unfriendly economic climate.
People are pricing in a major negative growth surprise, said David Bowers, Merrill's poll consultant. Despite the fact that markets have stabilized, people are catching up with the fundamentals.
Some 72 percent of the 213 fund manager respondents said they expected the global economy to weaken over the next 12 months compared with 61 percent in June.
More significant than the month-on-month change, however, was the comparison with just 40 percent expecting a weaker economy in the April poll.
In terms of the difference between those expecting a stronger economy and those a weaker, the July figure at a net 60 percent was the most pessimistic since Merrill began the poll in its current form in 2001.
July's pessimism was underlined by the finding that 63 percent of fund managers now expect corporate profits to deteriorate over 12 months compared with 57 percent in June and 44 percent in May and April.
The poll - which was taken as the latest Middle East conflict erupted - suggested there was rampant risk aversion among investors, with heavy allocations to cash.
Risk appetite has only been weaker three times in the past five years: shortly after 9/11, during the U.S. balance sheet crisis of 2002 and at the start of the (2003) Gulf War, Merrill said.
Despite this, allocations to equities remained relatively strong, with 54 percent saying they were overweight, the same as June but below the 60 percent in May.
Bonds continue to remain out of favor in the climate of rising global interest rates. Some 70 percent of fund managers have been underweight in bonds in the past three months.
People are still not ready to buy bonds, Bowers said.