Investors tell BofA poll that soft landing is expected

Investors are increasingly betting on a soft landing for the global economy, while big technology stocks are getting even more crowded on the expected boon to profits from artificial intelligence.

Those are key findings of Bank of America Corp.’s July global survey, conducted in the week through July 13. The firm found that 68% of surveyed fund managers expect an economic slowdown without a recession, while corporate profit expectations are now the least pessimistic since February 2022. In another sign of improving risk sentiment, investors are the least underweight global stocks this year, according to BofA. 

Being long big tech stocks topped the list of most crowded trades, while 42% of polled fund managers say AI will increase profits over the next two years. Investors now see the Federal Reserve reducing interest rates in the second quarter of 2024, according to BofA; in last month’s survey they predicted a cut in the first quarter. 

This year’s powerful rally in US equities is facing a reckoning in the second half as strategists warn about frothy valuations in technology shares, rising economic risks and headwinds to corporate earnings. 

While some Bank of America poll indicators pointed to increasing optimism, the bank’s broad measure of fund manager sentiment, based on cash positions, equity allocation and economic growth expectations, remains “stubbornly low,” strategists led by Michael Hartnett wrote.

The global survey spanned 222 participants with $588 billion in assets under management.

Other survey highlights include:

• Cash allocation rose from 5.1% to 5.3%
• Investors exited commodities, biggest underweight since May 2020
• Among surveyed investors, 48% predict start of global recession by the end of the first quarter of 2024, while 19% say no recession in next 18 months
• Biggest tail risk is high inflation keeping central banks hawkish, following by a bank credit crunch and global recession, worsening geopolitics and AI/tech bubble, with systemic credit event coming in last
• US/EU commercial real estate is seen as the most likely source for a credit event
• Among most crowded trades, following long big tech (59%) are long Japanese equities, short Chinese equities, long Treasury bills, short US dollar and short US banks