A Bank of America survey reveals that global fund managers are highly enthusiastic about equities and commodities, but their positioning has become a potential obstacle for risk assets. According to the survey, equities may face further correction if the US Federal Reserve does not cut interest rates in December, with the probability of a rate cut at 50 per cent, down from over 90 per cent a month prior. The S&P 500 has declined roughly 5 per cent from its recent high amid concerns about the Fed’s next move and the sustainability of capital spending on artificial intelligence.
Shares in Nvidia, a company whose computer chips are central to AI advancements, have fallen more than 10 per cent. Nvidia is scheduled to release its quarterly results soon, with a strong focus on future forecasts. The BofA survey indicates that the most crowded trade is “long magnificent seven,” which involves owning shares of megacap tech companies like Nvidia, Apple, and Microsoft. Simultaneously, the survey identifies an AI bubble as the biggest tail risk, with 45 per cent of respondents expressing concern, up from 33 per cent last month.
An AI bubble is already here, according to 53 per cent of investors surveyed. A record 63 per cent believe global equity markets are overvalued. The survey also found that 53 per cent of fund managers think AI is already increasing productivity. A net 20 per cent of fund managers report companies are overinvesting, driven by concerns over the magnitude and financing of the AI capex boom. Hyperscalers such as Microsoft, Alphabet and Amazon provide large-scale cloud computing services.
Fund managers have continued to reduce their cash holdings, with the average cash level dropping to 3.7 per cent. Forty-three per cent of fund managers expect the S&P 500 to end 2025 in the 7000-7500 range. Inflation and Fed rate increases is considered the most bearish development, according to 45 per cent of respondents.
