Investors are becoming increasingly optimistic as the stock market rally continues through the end of 2024.
In Bank of America’s December Global Fund Manager Survey, 36% of respondents said they were overweight U.S. stocks, the highest level in the survey’s history. This big shift into US equities was accompanied by a record-low allocation to cash and a three-year high in global risk appetite.
It also echoes recent calls on Wall Street for American “exceptionalism” to continue into 2025. Bank of America investment strategist Michael Hartnett noted that excitement about Donald Trump’s second term, optimism about US growth and the Federal Reserve cutting interest rates created “super-bullish sentiment” in the survey.
The widespread bullishness comes as investors become increasingly confident that the global economy will not enter a recession by 2025. Only 6% of survey respondents said they believe the global economy will experience a “hard landing” – with higher interest rates causing a downturn in economic conditions. growth – over the next twelve months. This was the lowest percentage of respondents calling for a hard landing in six months.
Amid signs of persistent inflation and resilient economic growth, 33% of investors said they expect a “no landing” in the global economy, where growth remains strong but inflation falls short of the Fed’s 2% target.
“We’re kind of teetering between the soft landing outlook that I think most of us had, certainly before the election, to a no-landing outlook,” Daniel Morris, chief market strategist at BNP Paribas Asset Management, told Yahoo Finance. “Inflation may not fall as the Fed expects. And in addition, you don’t see the slowdown in economic growth.”
Bank of America’s research was not exclusively positive. Investors’ allocation to cash fell from 4.3% in November to 3.9% in December. The move out of cash into stocks may indicate that the market rally has reached too high a level.
A cash position of less than 4% in BofA’s research has typically been a short-term “sell signal,” according to Hartnett. The MSCI World Index, which dates back to 2011, is down an average of 2.4% over the next month and 0.7% in the three months after the signal flashed.
Interestingly, the same “sell signal” was given in the October Bank of America survey. Since then, MSCI, which tracks Bank of America through BlackRock’s iShares MSCI ETF (ACWI), was up more than 1% in Tuesday’s trading day.
