On Tuesday, Bank of America (NYSE:BAC)'s latest Global Fund Manager Survey revealed a significant shift in investor sentiment, with global growth optimism reaching its highest level since February 2022. The survey, which aggregates the views of fund managers, indicated that for the first time since April 2022, a recession is not the anticipated outcome for the global economy. Two-thirds of investors are expecting a "soft landing," while only one-tenth foresee a "hard landing."
Investors' optimism appears to be fueled by expectations of lower interest rates, with only 4% of respondents predicting higher short-term rates and just 7% expecting an increase in inflation. A majority of 85% believe that the yield curve will steepen, and a record 46% of fund managers consider current fiscal policies to be excessively stimulative.
The survey also highlighted prevailing market trends, noting that the "long Magnificent 7" trade has become the most crowded since the "long US dollar" trade in October 2022. Additionally, "short China stocks" is the second most crowded trade, with one-quarter of respondents advocating for a structural underweight position in Chinese equities. When it comes to the leadership in the US equity bull market, 41% of investors favor "large cap growth," followed by 18% for "small cap growth."
In terms of asset allocation, global equity allocation is at a two-year high, with the allocation to US stocks reaching levels not seen since November 2021. Investments in the technology sector have surged to the highest point since August 2020, and the preference for growth stocks over value stocks is at its peak since May 2020. In contrast, fund managers have reduced their holdings in cash, commodities, emerging markets, defensive stocks, and energy stocks, with the latter at its lowest allocation since December 2020.
The survey also outlined potential contrarian trades based on different economic outcomes. For a "hard landing" scenario, the recommended strategy includes going long on cash and defensive stocks while shorting US, Japanese, and technology stocks. Conversely, for a "no landing" scenario, the suggested approach is to go long on commodities, energy stocks, the US dollar, and to short bonds.
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