Risk sentiment has surged to its highest level since January 2022, Bank of America noted in its latest monthly global fund manager survey.
The findings reveal a substantial rise in global growth optimism, the most significant since May 20, and record a historic increase in commodities allocation. Equity exposure has also risen to a net 34% overweight, matching the peak from January 2022, while cash holdings have decreased to 4.2%, down from 4.4% last month.
“Bull sentiment not quite at close-your-eyes-and-sell levels but risk assets tactically much more vulnerable to bad news than good,” strategists at Bank of America wrote.
The survey indicates a shift in investor sentiment regarding the macroeconomic outlook, with a net 11% of respondents now expecting a stronger economy over the next 12 months, marking the first net bullish outlook since December 2021.
Furthermore, 78% of those surveyed consider a global recession unlikely, with expectations for “no landing” jumping to 36% from just 7% in January, although the prediction for a “soft landing” has decreased to 54%, and hard landing expectations remain low at 7%.
The survey also identifies the primary tail risks facing markets, with inflation seen as the top concern at 41%, followed by geopolitical issues at 24%.
Key triggers that could prompt a shift to risk-off sentiment include the unemployment rate reaching 4.5% for 33% of managers, U.S. 10-year Treasury yields rising above 4.5% for 30%, and oil prices climbing above $100 per barrel for 29%.
There has been a notable rotation in investment preferences, with the most significant ever increase to materials and heightened allocations to energy, industrials, and European markets since February 2022, moving away from cash, emerging markets, and consumer staples.
The “most crowded” trades currently are long Mag 7 at 52% and short China at 16%, the results showed.
