A recent survey of global fund managers by Bank of America indicates a significant uptick in investor optimism. The June survey revealed that investor sentiment has reached its most bullish level since February. This surge is driven by the largest increase in profit optimism since July 2020, coupled with a record surge in risk appetite over the past three months.
The survey also noted a decrease in cash levels, falling from 4.2 per cent in May to 3.9 per cent, which the bank indicated as triggering a “sell signal”. Despite the increasingly positive sentiment, Bank of America suggests that while sentiment is approaching peak levels, it has not yet reached an extreme. They anticipate investors are more likely to hedge and rotate their investments rather than take substantial short positions or retreat.
Regarding future monetary policy, 47 per cent of fund managers surveyed expect the Federal Reserve to cut rates twice this year. A further 34 per cent anticipate one rate cut, while 10 per cent foresee no change to the federal funds rate. Eight per cent predict three cuts, and a small minority, 1 per cent, expect more than three cuts.
The primary “tail risk” remains the possibility of a trade war triggering a global recession, cited by 38 per cent of fund managers, a decrease from 47 per cent in May. Inflation preventing Federal Reserve rate cuts is the second-largest concern at 20 per cent, while 14 per cent identified a potential slump in the US dollar due to capital flight as the biggest tail risk. The most crowded trade is now “short US dollar”, held by 34 per cent of investors.
