The latest Bank of America Global Fund Manager Survey (FMS) for March 2024 reveals a substantial surge in optimism among fund managers. Economic growth expectations have peaked at a two-year high, sparking a buoyant sentiment as recession risks gradually dissipate.
This upbeat outlook has manifested in heightened allocations towards stocks, soaring to unprecedented levels. However, a discernible stratagem shift is apparent in the investment landscape. Investors are pivoting towards Europe, emerging markets (EM), and financial sectors, steering away from U.S. equities and technology.
Insights into the Macro Environment: Towards a ‘Soft Landing’ Consensus
The survey amplifies the prevailing agreement among two-thirds of respondents that a recession is improbable over the next 12 months. Notably, 62% anticipate a “soft” landing for the economy, a stark departure from the 5% who advocated for a “no landing” scenario in October 2023.
This paradigm shift towards optimism is further underscored by diminishing expectations of a “hard” landing, attenuating to 11% from 30% in the preceding October. As the expectation of a soft economic landing gains traction, investors are primed to embrace heightened risk levels, reflecting a bullish yet cautiously optimistic market sentiment.
Moreover, there has been a noteworthy surge in earnings per share (EPS) optimism, hitting a two-year peak. Investors exhibit a robust inclination towards companies returning cash to shareholders, marking the highest sentiment since July 2015.
The Great Rotation: A Tectonic Shift From U.S. Tech Investments
March 2024 witnessed a monumental rotation into emerging market stocks, unsurpassed since April 2017, and Eurozone stocks, a phenomenon not witnessed since June 2020.
This transition signals a broad investment preference metamorphosis, veering away from U.S. stocks, technology, and consumer discretionary sectors—the most substantial pivot since May 2015. The mounting preference for low-dividend stocks, peaking since December 2021, reflects a robust risk appetite among investors.
AI Stocks: IN a Bubble or on the Cusp of a Boom? The ‘Magnificent 7’ Take Center Stage
A striking 84% of respondents envision a descent in short-term rates over the following 12 months, with 40% anticipating a dip in bond yields. Inflation lingers as the primary tail risk concern.
The survey spotlights the “Long Magnificent Seven” as the most crowded trade, divulging a schism in opinions regarding AI stocks—45% refute the existence of an AI bubble, while 40% affirm it. This rift likely stems from the remarkable performance witnessed in these markets over recent months.
The Roundhill Magnificent Seven ETF (MAGS) has surged by 20% year-to-date, mirrored by a nearly 40% upswing in the Roundhill Generative AI & Technology ETF (CHAT) since late October 2023.
Sectoral Perceptions and Contrarian Moves
The survey designates U.S. commercial real estate as the sector most prone to instigate a credit event, as indicated by 42% of FMS investors.
Contrarian plays identified in the survey encompass long positions in technology for those prognosticating a bubble, long UK, commodities, and resources for stagflation apprehensions, and long staples and utilities for a conceivable hard landing scenario.
Image created using artificial intelligence with Midjourney.
