As evidenced by the stock market's sharp rise last month, investors are feeling more bullish than at any time in more than two years.
Bank of America's Global Fund Manager Survey for February released Tuesday gave broad investor sentiment a rating of 4.1, up from 2.9 the previous month and the highest since January 2022. Bank of America pointed to cash levels, equity allocation and economic growth. Expectations all played an important role in improving sentiment.
Survey of approximately 200 participants with over $500 billion in assets under management Two-thirds of investors expect the economy to have a soft landing this year, revealed If inflation returns to the Federal Reserve's goal of 2% without a severe economic downturn. especially, Investors are not predicting a global recession for the first time since April 2022.
The outlook is even more positive after this year's U.S. economic data showed an unexpectedly large improvement. Additionally, the Atlanta Fed currently projects first-quarter economic growth at an annualized rate of 3.4%, and some believe this will continue. Last week, Deutsche Bank reversed its long-held view that the U.S. economy was heading into recession, after improving growth prospects and showing few signs of deterioration in the labor market.
“When we first adopted a mild recession as our baseline forecast, the key factors were that the economy was far from the Fed's target and had a history of central bank-induced disinflation, even if it was unprecedented. “We now see the economy on this narrow path,” Matthew Ruzzetti, chief U.S. economist at Deutsche Bank, said in a Feb. 5 research note. “We believe that a recession will be avoided with limited labor market costs.”
With Ruzzetti and others backtracking on calls for a recession, many investors believe interest rates are likely to fall going forward, and investors are more bullish on the overall outlook for the stock market in 2024. It has become. 46% of investors say global fiscal policy is “too stimulative,” a record high.
This optimism was seen across the investor positioning expressed in the survey. Investor allocations to U.S. stocks were the highest since November 2021, and allocations to tech stocks were the highest since August 2021.
This comes as investors continue to drain cash positions. Fund managers' average cash level now stands at 4.2%, down 55 basis points from the January survey. Bank of America noted that typically, when cash allocations decline by more than 50 basis points, stocks return an average of 4% over the following three months.
However, the decline warranted caution because cash allocations below 4% typically trigger a “sell” signal, according to BofA.
The exuberance seen in Tuesday's report has been hotly debated on Wall Street, as the S&P 500 index recently topped 5,000 for the first time in history.
“Looking at how things are shaping up, our positive forecast for the S&P 500 to reach 5,500 at the end of this year could come true within a few months.” John Higgins, chief market economist at Capital Economics, said in a note Monday. “But I don't think the rally will end there.”
Higgins noted that valuations are lower than they were during the tech bubble of the late 1990s, so stocks are likely to fall further before the proverbial stock bubble bursts. However, JP Morgan takes a different position.
“Markets demand perfection, and the internal dynamics of an unhealthy stock market due to extreme concentration, high investor positioning, high valuations, the Fed pushing back on dovish market behavior, inflation and geopolitics. Given the underestimation of risk, we believe the risk-reward remains unfavorable for stocks that are “trading at all-time highs,'' said Marco, J.P. Morgan's chief market strategist. Kolanovic wrote in a note to clients Monday night.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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