In the most bullish sentiment seen in two years, the latest Bank of America’s Fund Manager Survey (FMS) shows a significant shift in investor behavior and market outlook.
US stocks and the tech sector, in particular, have seen the highest allocation since November 2021 and August 2020, respectively. This shift has led to reduced allocations in cash, commodities, emerging markets, defensive stocks, and energy stocks—the latter reaching its lowest point since December 2020.
Cash levels among investors have dropped to 4.2% from 4.8%, signaling an increased appetite for risk as global growth expectations soar to their highest in two years.
This surge in optimism has led investors to heavily invest in US technology stocks, pushing the Bank of America Bull & Bear Indicator to 6.8, indicating that investor positioning may now pose a challenge for risk assets.
For the first time since April 2022, the fear of an impending recession has subsided among investors. Optimism about global growth has reached levels not seen since February 2022, with a net -25% of investors feeling positive.
When asked about the economic trajectory for this year, two-thirds of investors anticipate a "soft landing," one-fifth believe there will be "no landing," and only a tenth foresee a "hard landing," according to analysts at BofA.
The catalyst behind this optimism seems to be the expectation of lower interest rates. Only a small fraction of investors expect short-term rates to rise, and a mere 7% foresee higher inflation rates.
A vast majority, 85%, predict a steepening yield curve, and a record 46% of respondents view fiscal policy as overly stimulative.
In terms of trading trends, the "long Magnificent 7" trade has become the most crowded since the "long US dollar" stance in October 2022, marking a significant inflection point.
Meanwhile, "short China stocks" ranks as the second most crowded trade, with a quarter of investors advocating a structural underweight position in China.
For those considering contrarian trades, positions vary based on economic expectations: a "hard landing" scenario suggests going long on cash, defensives, and shorting US/Japan and tech stocks, while a "no landing" outlook favors long positions in commodities, energy, the US dollar, and shorting bonds.