Bear markets don't hit bottom, say experts, until investors throw in the towel. A Merrill Lynch survey of fund managers overseeing more...

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Bear markets don’t hit bottom, say experts, until investors throw in the towel.

A Merrill Lynch survey of fund managers overseeing more than half-a-trillion dollars, titled “Capitulation Complete?” found that pros have become increasingly gloomy on the economy, spoiling their appetite for risk. The survey was conducted at the beginning of the month, when global equity markets lost nearly 19 percent.

Small-time investors are also losing their nerve. Morningstar reports investors pulled an estimated $47.5 billion out of mutual funds last month, an all-time high. Likewise, the number of respondents to the Merrill survey who said they are “overweight” cash reached the highest point since the survey began in 1998. Those who think stocks are undervalued also peaked.

“Fund managers are waiting for the triggers that will give them the confidence to buy,” says Gary Baker, equity strategist at Merrill. “What they are looking for is a loosening of monetary conditions and for third-quarter earnings to clarify where problems and opportunities lie across equity markets.”