Key points
- Global fund managers show the highest equity overweight in seven months.
- Growth expectations see sharpest improvement in nearly a year, recession fears ease.
- AI-driven tech rally and lower-than-expected tariff impact fuel market optimism. The market anticipates multiple Fed rate cuts to prevent a recession.
- Investors cite inflation, Fed independence, and dollar devaluation as key risks.
Global equities are primed for continued growth, fueled by a surge in economic optimism, according to Bank of America’s Michael Hartnett. Hartnett’s latest fund manager survey reveals a net 28% overweight position in equities, the highest in seven months. A significant improvement in growth expectations underpins this bullish sentiment; only 16% of investors now anticipate an economic slowdown, a near-year low.
The receding threat of a “recessionary trade war” further contributes to this positive outlook, leading Hartnett to declare a “bull market.” The current equity exposure, he notes, is not yet at extreme levels, suggesting further upside potential.
This optimism is reflected in record highs reached by the MSCI All-Country World Index. The surge is largely driven by renewed enthusiasm surrounding artificial intelligence, particularly benefiting technology giants. Meanwhile, the actual impact of US tariffs has been less severe than initially feared.
Adding to the positive outlook, investors anticipate the Federal Reserve will proactively lower interest rates to stave off a potential recession. Swap markets fully price in a 25-basis-point rate cut at the upcoming Fed meeting, and almost half of BofA’s survey respondents expect four or more cuts in the next year.
Despite the prevailing optimism, significant risks remain. The survey highlights concerns about a second inflation wave (26% of respondents), the Fed’s independence amidst political pressure (24%), and the potential devaluation of the dollar (24%). These concerns echo warnings from other major financial institutions, such as JPMorgan Chase and Goldman Sachs, which have expressed anxieties regarding the Fed’s independence in light of President Trump’s actions.
Nonetheless, the forecast for further equity gains through year-end persists, primarily bolstered by strong corporate earnings. Interestingly, the survey also shows that half of the respondents believe AI is already boosting productivity.
Further insights from BofA’s survey, conducted from September 5th to 11th among 165 participants managing $426 billion in assets, include a consistent average cash level of 3.9%, a slight decrease in investors adopting lower-than-normal risk levels, and a growing preference for increased corporate capital spending over a focus on the balance sheet.
The most crowded trades remain long positions in the “Magnificent Seven” tech stocks, gold, and short positions in the dollar.
