Bank of America's latest fund manager survey was the most bullish since November 2021, driven by optimism on rate cuts rather than earnings, the firm said in a note Tuesday.
The investment bank said its survey showed most global fund managers (eight out of ten) expect rate cuts in the second half of 2024 and no recession.
Meanwhile, cash levels are down to 4%, a three-year low, while stock allocation is at its highest since January 2022.
"Sentiment [is] not at 'close-eyes-and-sell' levels, but risk assets [are] vulnerable to more evidence of stagflation (inflation up, growth down)," wrote Bank of America.
Furthermore, the survey shows fund managers expect the first drop in global GDP and EPS expectations since Sep 2023 as US macro pessimism jumps, although a soft landing is still the consensus.
Meanwhile, a record 55% say fiscal policy is "too stimulative," indicating a peak "tailwind" from government spending.
82% of respondents expect the Federal Reserve to cut the second half of this year, with 78% expecting the Fed to cut two, three or more times over the next 12 months. Higher inflation is considered the number one tail risk for investors, followed by geopolitics and a hard landing.
Long the Magnificent 7 is the most crowded trade, although asset allocation shows a modest defensive rotation in May to staples from industrials.