The top investors across the globe have expressed growing confidence in the 2024 market outlook, signaling a favorable sentiment towards a ‘soft landing’ or even no landing for the U.S. economy.
In January, global fund managers, surveyed by Bank of America, identified the “long Magnificent Seven” as the most overcrowded trade, indicating substantial support for further growth of tech giants including Alphabet Inc (GOOGL), Amazon.com Inc (AMZN), Apple Inc (AAPL), Meta Platforms Inc (META), Microsoft Corp (MSFT), Nvidia Inc (NVDA), and Tesla Inc (TSLA).
Despite the crowded trade, fund managers view being long on the Magnificent Seven stocks as one of the best strategies to navigate this year’s expected rate cuts by the Federal Reserve.
Overweight U.S. Equities
Investors have reduced their global equity portfolios but are currently at their highest overweight position on U.S. equities since December 2021, exhibiting a clear preference for high quality.
In a notable shift, small caps were favored over large caps for the first time since June 2021. The Russell 2000 index of small cap stocks surged by 26% from late October 2023 to its late December peak, outperforming the S&P 500’s 16% increase during the same period.
Likewise, the two respective exchange trade funds tracking these indices yielded equivalent gains, with the iShares Russell 2000 ETF (IWM) up by 26.5% and the SPDR S&P 500 (SPY) gaining 16% over the same period.
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Recession Risk Fades
According to the BofA survey, a significant majority of respondents (79%) anticipate either a soft landing—a slowdown in economic activity with minimal impact on earnings—or no landing at all, with the economy projected to sustain growth throughout 2024. Only 17% anticipate a hard landing.
This sentiment aligns with remarks made by former CME economist Bluford Putnam to Benzinga, where he expressed confidence in the absence of a hard landing in 2024, projecting a gross domestic product growth of 2.5%-3% for the year.
Key Risk Factors
The BofA survey also highlighted key drivers for equity markets in 2024, with over half of the respondents (52%) pointing to the Federal Reserve, while 33% cited corporate earnings.
Despite the positive outlook of institutional investors for 2024, early January witnessed a temporary market pullback. The S&P 500 experienced a 1.5% dip in the first week of 2024 before regaining momentum.
In addition, BofA’s Financial Market Stability Risks Indicator rose to 3 in January from 2.5 in December, attributed to “greater geopolitical risk” and “business cycle risk,” including the possibility of an economic hard landing and higher inflation.
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