Investors are the most optimistic since the beginning of last year as expectations of policy easing by the US Federal Reserve are fueling a rush into stocks, a Bank of America Corp (BofA) survey showed.
The sentiment of global fund managers surveyed this month was the most upbeat since January last year on a Goldilocks environment — a steady economy that is not running too hot or too cold — as the case for next year, a team of strategists led by Michael Hartnett wrote in a note yesterday.
Against that backdrop, the poll showed that investors are the most overweight on stocks since before the Fed started to hike interest rates, with cash allocations cut to a two-year low of 4.5 percent from 4.7 percent.
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Meanwhile, fund managers are the most overweight on bonds in 15 years. They are also the most bearish on commodities relative to bonds since March 2009.
“Policy, not positioning,” is the new tactical driver of asset prices, Hartnett said.
The Fed’s last meeting this year fueled expectations of a dovish tilt with the likelihood of interest rate cuts next year. The S&P 500 is approaching a record high while the NASDAQ 100 already breached that level.
A net 91 percent of the BofA poll participants said that hikes from the US central bank are over and expectations of lower rates along with bond yields are at a record high for this century.
Bonds and technology are seen as the biggest winners from Fed cuts.
In terms of risks, investors are most wary of a hard landing — or a recession — next year. That said, a net 66 percent is anticipating a soft landing for the global economy over the next 12 months.
Hartnett said the best hard landing contrarian trade is long cash and short the group of stocks called the “Magnificent Seven” such as Apple Inc.
The poll was conducted between Dec. 8 and Thursday last week, spanning 219 participants with US$611 billion in assets under management.
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