Global fund managers at their "most bullish" since February, BofA survey shows

BofA's September survey indicates global fund managers are the most bullish since February, driven by ebbing U.S. trade policy concerns and strong expectations for Fed rate cuts, with markets anticipating at least a 25 basis point reduction soon and 47%+ of respondents expecting four or more cuts. This optimism has led to low cash levels, a seven-month high in global equity overweight positions, and a significant jump in growth expectations, as two-thirds foresee a U.S. soft landing. Despite 58% viewing stocks as overvalued, investors are reallocating, reducing EM and European equity longs while increasing exposure to U.S. tech, banks, and healthcare.

Analysis

Global fund manager sentiment has reached its most bullish level since February, according to Bank of America's September survey, underpinned by a confluence of positive factors. A primary driver is the strong expectation of monetary easing by the U.S. Federal Reserve, with markets fully pricing in at least a 25 basis point rate cut and nearly half of surveyed managers (47%) anticipating a series of four or more reductions. This has fueled a significant improvement in economic growth expectations, the largest since last October, with two-thirds of respondents now projecting a 'soft landing' for the U.S. economy. Concurrently, concerns over U.S. trade policy are diminishing. This optimism is reflected in investor positioning: cash levels are low and allocations to global equities are at a seven-month high. However, a notable contradiction exists, as 58% of managers view equities as 'overvalued' following a 12% year-to-date rally in the S&P 500. Portfolio adjustments show a clear rotation, with investors reducing long positions in emerging markets and European equities while covering U.S. shorts and increasing exposure to U.S. tech, banks, and healthcare, capitalizing on themes like the artificial intelligence boom.

Key Decisions for Investors

• Given the strong bullish consensus and high equity allocations, investors should assess if their exposure aligns with the pro-risk rotation into U.S. tech, banks, and healthcare where institutional momentum is concentrated.
• Exercise caution on valuations, as a majority of fund managers (58%) perceive stocks as overvalued, suggesting a selective approach is more prudent than broad market indexing after a 12% S&P 500 rally.
• Closely monitor upcoming Federal Reserve policy meetings and inflation reports, as the prevailing market optimism is heavily dependent on the delivery of anticipated rate cuts and the achievement of a soft landing.