Monthly fund manager survey shows investors are still cautious but there has been improvement
Record pessimism expressed by investors earlier this year has been replaced by a less bearish, but still cautious tone.
The monthly Bank of America (BofA) fund manager survey reveals better expectations for global growth and profit expectations, which had a hit an all-time low last month.
Canada’s latest inflation stats, showing a cooling in July compared to a month earlier, is in line with expectations that global rises will also start to ease over the next 12 months.
There was also an uptick on allocations to stocks, which had reached a “dire” level in July. There has been a rally in US stocks since mid-June with the Nasdaq 100 up 23%.
Investors now expect growth stocks to outperform value stocks in the next 12 months. This is the first time since they have said that since August 2020.
“Sentiment remains bearish, but no longer apocalyptically bearish as hopes rise that inflation and rates shocks end in coming quarters,” wrote BofA strategist Michael Hartnett.
The Wall Street bank’s experts are holding firm on their base case, that rates will continue rising and earnings will be lower.
Survey respondents believe that the Fed will continue to hike rates until inflation (CPI) drops to 4%, which is some way off.
Asked about the likelihood of recession, 58% of respondents thought it would happen in the next 12 months, the highest share since May 2020.
Other survey highlights, reported by Bloomberg, include:
- Investors are long stagflation plays including commodities, cash and defensives, while being short European and emerging market stocks and the consumer sector
- Big August rotation to US stocks, technology and consumer, and out of staples, utilities and the UK
- Investors see the G7 announcing an energy price cap as the most likely outcome of the energy crisis in Europe
- Most crowded trades are long US dollar, long oil and commodities, long cash, long FAANG stocks, short US Treasuries and short EM debt