Investing.com -- Investor pessimism has eased since April, but positioning remains bearish enough that the “pain trade is still modestly higher” following positive U.S.-China tariff developments, according to Bank of America’s latest Global Fund Manager Survey (FMS).
The May survey, which included 174 participants managing $458 billion, showed that expectations for a global recession have dropped significantly. Just 1% of investors now see a recession as likely, down from 42% in April. Meanwhile, net 59% expect weaker global growth, an improvement from 82% the prior month.
Optimism about a “soft landing” has returned, with 61% of respondents now seeing this as the most probable economic outcome. Investors also trimmed their average cash balances to 4.5% from 4.8%, dipping below the long-term average.
According to BofA, “investor sentiment [was] glum, especially on U.S. assets,” with 75% of responses submitted before the announcement of U.S.-China trade talks.
But trade tensions remain a dominant concern. The final U.S. tariff rate on Chinese exports was expected to be 37%, versus the announced 30%.
“Trade war triggering global recession” was still the top tail risk, flagged by 62% of respondents, while 43% identified it as the most likely cause of a credit event.
In terms of asset allocation, investors remain heavily underweight U.S. equities, with exposure at its lowest since May 2023.
Eurozone stocks were increased to a net 35% overweight, the most in nearly seven years relative to the U.S. dollar sentiment also flipped sharply, with exposure at the most underweight level since May 2006.
Gold is now seen as the most overvalued asset in the survey’s 17-year history, with 45% of investors flagging it as expensive. “Long gold” was named the most crowded trade for a second month, surpassing the “Magnificent Seven.”
Positioning in technology changed notably, with a 17-point rise month-over-month—the biggest jump since March 2013. However, overall tech exposure remains neutral. Energy was the most underweight sector on record.
BofA also flagged key contrarian setups: if the “no landing” scenario plays out, it would favor U.S. stocks, emerging markets, small caps, and Energy while hurting gold. Conversely, a “hard landing” would benefit the Healthcare sector and weigh on eurozone stocks and banks.