Investor sentiment globally remained generally bearish in early July despite increasing bets that the world economy may achieve a “soft” economic landing and avoid a recession, while the rush to megacap technology stocks drove the stock market higher, according to the Bank of America (BofA) Global Fund Manager Survey.
A broad measure of BofA’s fund manager sentiment, which is based on cash positions, equity allocation and economic growth expectations, shows the sentiment is still “stubbornly low” and not improving into the second half of 2023, said a team of investment strategists led by Michael Hartnett.
The majority of surveyed fund managers expect a weaker global economic growth, while 48% predict the start of a global recession by the end of the first quarter of 2024. However, bets on a soft landing surge to 68% in early July, which is higher than the 21% expecting a “hard landing” scenario and the 4% forecasting a “no landing” scenario (see chart below).
In the global central banks’ fight against post-pandemic inflation, policymakers aim to achieve a soft landing, to use the metaphor of a pilot landing an aircraft, where the economy slows down just enough to control inflation, but avoids a recession. This is distinguished from a hard landing, in which the central banks rein in the economy too much to curb inflation and that leads to a recession. A no landing scenario involves the economy continuing to grow despite the policymakers’ efforts to tamp down inflation with higher interest-rates.
See: Recession? White House sees ‘momentum’ that will keep U.S. out of one.
In other indicators of risk sentiment, expectations on earnings-per-share (EPS) are now the least pessimistic since February of 2022, and the global EPS forecast for the next 12 months rises a small 0.5%, said BofA strategists in a Tuesday note.
Being “long Big Tech” is now the most crowded trade, with 42% of polled investors saying the widespread adoption of artificial intelligence (AI) will increase corporate profits over the next two years, and merely 1% said it will create more jobs, according to the BofA survey.
Fund managers now see the Federal Reserve cutting U.S. interest rates in the second quarter of 2024. Fed funds futures traders Tuesday see a 36% chance that the Fed’s main policy rate target will drop to between 5% and 5.25%, or even lower, in January 2024, according to the CME FedWatch Tool.
U.S. stocks finished higher on Tuesday as investors digested better-than-expected corporate earnings. The Dow Jones Industrial Average
DJIA,
jumped 366 points, or 1.1%, to end at 34,951. The S&P 500
SPX,
was 0.7% higher, while the Nasdaq Composite
COMP,
advanced 0.8%.
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