“In Soft We Trust”
Preview of the latest BofA Global Fund Manager Survey report
(July 2024)
What’s inside this report?
Some extracts from the report are shown below:
July 2024 BofA Global FMS takeaways
Bottom line: FMS investors remain bullish driven by Fed rate cuts & soft landing; July growth expectations lower and FMS cash level up to 4.1% but change in “long equity- short bond” conviction awaits shock to soft landing narrative (and politics entrenching existing conviction); BofA Bull & Bear Indicator remains at 6.3.
FMS on Growth: global growth expectations fall from -6% to -27% (net), largest drop since Mar’22 (Chart); but investors very optimistic on “soft landing” (68%) versus “no landing” (18%) or “hard landing” (11%); 67% expect no recession in next 12 months.
FMS on Rates: “higher inflation” no longer #1 tail risk (now “geopolitics”); investors say monetary policy most “restrictive” since Nov’08; 87% expect lower rates, 81% a steeper yield curve, 62% predict a minimum three cuts by Fed next 12 months, starting Sept 18th.
FMS on Asset Allocation: rate cuts + soft landing… asset allocators stay OW stocks (net 33%) & UW bonds (net -9%); notable extremes in July… UW in REITs biggest since Jan’09, largest fall in EU equity exposure since Jul’22, first OW in utilities since Feb’09, and “long Magnificent 7” most “crowded FMS trade” by a country mile (71%).
FMS on Politics: investors say trade policy to be most impacted by US election; asked for impact of US election ‘sweep’ (same party wins White House & Congress), 77% say higher bond yields, 52% say higher US dollar, 48% say higher US stocks (vs 29% lower).
FMS Contrarian Trades: based on July FMS absolute/relative extremes, contrarian trades are long cash vs. stocks, long Europe vs. US equities, long small vs. large cap stocks, long discretionary vs tech.
Chart 1: Global growth expectations down, but July FMS more optimistic on soft landing
Net % FMS expecting the global economy to get stronger next 12 months vs S&P 500 (YoY %)
Full PDF-version of Global Fund Manager Survey report is available to our subscribers.
Charts of the Month
In the July Global Fund Managers Survey, global growth expectations fell, and FMS investor cash level rose slightly to 4.1% from 4.0%.
Chart 2: FMS cash level rises to 4.1% from 4.0%
FMS average cash level (% of AUM)
Monetary policy is too restrictive according to 39% of investors, the most restrictive since Nov’08…
…but this in turn deepens the belief that global interest rates are set to fall over the next 12 months.
Chart 3: 39% think that monetary policy is ‘too restrictive’
% of FMS that think monetary policy is ‘too restrictive’
FMS investors are optimistic that monetary easing will generate a “soft landing” (68% see this as the most likely outcome for the global economy).
18% of FMS investors expect “no landing” (6-month low), while 11% see a “hard landing”.
We believe “hard landing” risks are underpriced given the slowdown of US consumer, labor market, government spending… this makes us most bullish on bonds and gold in H2’24.
Chart 4: 68% say “soft landing,” 18% “no landing,” 11% “hard landing”
What is the most likely outcome for the global economy in the next 12 months?
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