Fund Managers Are The Most Optimistic Since 2022: 'Bull Sentiment Not Quite At Close-Your-Eyes-And-Sell Levels'

Zinger Key Points
  • Fund managers' allocation to equities rose 6% to a net 34% overweight in April 2024, the highest since January 2022.
  • 41% of fund managers now see higher inflation as the main market risk; 76% anticipate at least two Federal Reserve rate cuts in 2024.

A striking uptick in optimism among fund managers is visible in the latest Global Fund Managers Survey by Bank of America, with investors showcasing the most bullish outlook for global equities since January 2022.

The survey included 224 panelists overseeing $638 billion in assets. It found that equity allocations rose by 6 percentage points to a net 34% overweight in April 2024. This marks the largest overweight position in equities since early 2022.

Surge in Growth Expectations and Equity Allocations

Global growth optimism saw its largest increase since May 2020. A net 11% of managers now anticipate a stronger economy over the next 12 months, a significant reversal from the net 12% who expected a weaker economy in March 2024.

Concurrently, 78% believe a global recession is “unlikely” within the next year, the highest confidence level since February 2022.

Additionally, 24% of the respondents now predict an “economic boom,” defined as above-trend growth and inflation. This is an increase from 12% last month and 5% in January 2024.

Cash and Asset Allocation Trends

The average cash level held by fund managers has decreased from 4.4% to 4.2% of assets under management (AUM), approaching the sub-4% level that traditionally indicates a contrarian sell stance for equities.

“Bull sentiment not quite at close-your-eyes-and-sell levels (i.e. cash <4%) but risk assets are tactically much more vulnerable to bad news than good,” Bank of America wrote.

A record-setting monthly increase in commodities allocation was also noted, with a 20 percentage point month-over-month surge, the largest ever recorded by the survey.

Read also: Biden To Announce Tariff Hikes On Chinese Steel, Aluminum Imports: Another ‘Hit To Real Income And Consumer Spending,’ Economist Cautions


Inflation Expectations And Federal Reserve Actions

Inflation expectations have sharply increased to the highest point since April 2022, with 41% of managers viewing “higher inflation” as the predominant tail risk for markets.

Despite this, a significant portion of the participants (76%) anticipates at least two Federal Reserve rate cuts in 2024, with only 8% not expecting any rate reductions this year.

Sector Allocations And Risk Perceptions

Investors have shown a preference for materials, energy, and industrials this month, moving away from the staples, pharmaceuticals, and technology sectors.

The survey indicates a strong overweight position in pharmaceuticals and technology, while utilities and staples are markedly underweight.

Geopolitical concerns were cited as the second most significant tail risk at 24%, followed by concerns around the U.S. election and the possibility of an economic hard landing, each at 12%.

A third of participants consider the unemployment rate rising to at least 4.5% as the first catalyst to drive a defensive risk-off move in equities, followed by the 10-year U.S. Treasury yield above 4.5% (30%) and oil above $100 a barrel (29%).

Crowded Trades And Bond Allocation Shifts

“Most crowded trades are long Mag 7 (52%) and short China (16%),” Bank of America revealed.

The Roundhill Magnificent Seven ETF MAGS has risen by 15% year-to-date, outperforming the SPDR S&P 500 ETF Trust SPY, up 6%, and the tech-heavy Invesco QQQ Trust QQQ, up 5.6%.

Additionally, perceptions of gold being overvalued have risen sharply by 20 percentage points month-over-month, marking the highest level of concern since August 2020.

Meanwhile, the bond market has seen a substantial reduction in interest, with allocations dropping 20 percentage points to a net 14% underweight—the most substantial monthly decrease since July 2003.

Overall, this surge in bullish sentiment and strategic shifts among global fund managers suggests a markedly optimistic outlook for global markets, tempered only slightly by rising inflation fears and geopolitical risks.

Read also: S&P 500 Due For ‘Classic 10% Correction,’ Wall Street Veteran Warns: Why They Expect Zero Rate Cuts In 2024

Image generated using artificial intelligence via Midjourney.

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