Evening Brief – 03.21.24
Bullish Sentiment
Fund managers are becoming increasingly bullish as recession concerns fade, according to the findings of Bank of America’s latest Global Fund Manager Survey.
The survey’s broadest measure of sentiment, which is based on cash levels, economic growth prospects, and equity allocations, increased to 4.6 in March from 4.3 in February, the highest level of optimism since January 2022.
According to the bank’s ‘Bull & Bear’ indicator, which remains slightly bearish, estimates of global growth over the next 12 months were slightly more than a net -10% among the 226 fund managers who handle a total of $572 billion in assets.
However, it is a big gain over the net -25% expressed by managers in February, which was already a notable increase over the January projection of a net -40%.
Meanwhile, money managers’ cash levels rose slightly to 4.4% in March from 4.2% the previous month, indicating some risk aversion. However, this remains below the 4.8% cash levels indicated by managers in January.
“As per BofA Global FMS (fund manager survey) cash rule, when FMS average cash balance rises above 5%, it triggers a buy signal for equities (contrarian bullish signal) and a fall below 4% triggers a sell signal for equities (contrarian bearish signal),” said the bank.
Managers’ allocations to equities increased to a net 28% overweight, up from a net 21% overweight in February, indicating greater optimism. This is the fifth consecutive month that managers have reported an overweight in stocks, following an 18-month stretch of underweight that ended in October when equities subsequently began their strong bull-run.
The percentage of respondents who predicted a soft landing declined to 62% in March from 65% in February, while the percentage of those who expect “no landing” increased to 23% in March from 19% in February. Those who predict there will be a hard landing held at 11%.
When asked what the overall largest tail risk is, 32% said higher inflation, up from 27% in February, while 21% said geopolitics, down from 24% in February. Meanwhile, 14% said the U.S. election is a concern, compared with 12% in February, and systemic credit event, 11% (same as in February) and the China banking crisis, 3% versus 4% the previous month, also remain top of mind.
Fund managers said the most crowded trades in March have been ‘magnificent 7’ (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla), Japan and Bitcoin. Bearish bets on Chinese equities are the second most crowded trade. Investors are split on whether artificial intelligence (AI) stocks are in a bubble with 40% saying yes and 45% saying a no.