Investor confidence has reached its peak since mid 2020, according to Bank of America’s (BofA) October Global Fund Manager Survey.
The report shows a significant surge in optimism, driven by expectations of U.S. Federal Reserve interest rate cuts, economic stimulus measures in China, and the possibility of a “soft landing” for the global economy.
BofA noted that investor sentiment saw its largest boost since June 2020, with the bank’s Bull & Bear Indicator rising to 7.1.
While the rise in optimism is notable, the indicator still falls short of the critical “sell signal” threshold of 8.0, indicating some remaining caution among investors.
The survey also revealed the largest increase in global growth expectations since May 2020, with investors gaining confidence in economic recoveries in the U.S. and China.
In the survey, 76% of investors now expect a “soft landing” for the global economy, while only 8% foresee a “hard landing.”
Respondents predict the Federal Reserve will reduce interest rates by 160 basis points over the next year, with 85% anticipating a steeper yield curve.
Investor portfolios are undergoing noticeable adjustments as well. The report highlights a significant jump in global equity allocations, the largest since June 2020, while bond allocations saw a record decline, shifting from 11% overweight to 15% underweight.
Cash holdings have also dropped, with levels decreasing to 3.9% from 4.2%, which BofA says triggered an “ACWI sell signal.”
In response to China’s stimulus efforts, emerging market stocks and commodities are seen as the key beneficiaries, while government bonds and Japanese equities are expected to lag.
BofA also reported that investors are moving toward discretionary and industrial stocks, while pulling back from staples and utilities.
Lastly, the upcoming U.S. election is likely to influence trade policy, with a third of investors planning to increase their hedging strategies ahead of the vote.
