Investor sentiment remains bullish despite mixed economic indicators, driven mainly by rising odds of rate cuts and a soft landing, Bank of America’s global fund managers (FMS) survey showed. Yet, growth expectations are now at the lowest level since March 2022.
The survey, led by strategists, noted a slight increase in cash allocation to 4.1% from 4.0% of assets under management (AUM). However, the conviction in a “long equity-short bond” strategy is yet to be shaken by any significant disruption to the soft landing narrative or political developments.
Interestingly, 27% of investors now anticipate a weakening global economy over the next 12 months, a sharp rise from 6% in June. Despite this, a majority—68%—still expect a soft landing, compared to 18% predicting “no landing” and 11% foreseeing a “hard landing.” Moreover, 67% believe there will be no recession within the next year.
Geopolitical concerns have emerged as the primary tail risk, with 26% of respondents identifying it as their top worry, surpassing the 22% who cited higher inflation. Notably, 56% of the respondents anticipate the Fed will make its first rate cut in September, and 84% expect at least two rate cuts over the next 12 months.
In terms of asset allocation, fund managers remain overweight on stocks (net 33%) and underweight on bonds (net -9%). The survey showed a notable rise in allocations to US equities, which increased by 8 percentage points to a five-month high of net 16% overweight.
On the other hand, Eurozone equities saw a significant drop of 20 percentage points to net 10% overweight, marking the lowest allocation since February 2024 and the largest decline since July 2022.
Other significant changes include a net 29% underweight in REITs, the largest since January 2009, and the first overweight in utilities since February 2009 at a net 2%, driven by a record 20 percentage point increase in allocation. The “long Magnificent 7” remains the “most crowded FMS trade,” sitting at 71%, strategists highlighted.