Investors on Edge But Not in Panic Mode: BofA Fund Manager Survey

One of the most important lessons from Bank of America’s most recent fund manager survey is that while investors are uneasy, they are not panicked.

The results indicate, among other things, that cash levels have increased from 4.1% to 4.3% and that the percentage of investors who are overweight in equities has decreased from 51% to 31%.

While there is no longer as much optimism about capital expenditures as there was nine months ago, 76% of respondents still hold out hope for a soft landing. Though 60% of investors anticipate four or more rate cuts in the upcoming year, they now think that the Federal Reserve will need to act more aggressively to prevent a recession.

In the meantime, estimates for global growth have drastically decreased, from a net -27% to a -47%. The possibility of a “no landing” scenario has dropped from 18% to 8%, but the probability of a “soft landing” has climbed from 68% to 76%. Meanwhile, the anticipation of a “hard landing” has slightly increased from 11% to 13%.

The report also reveals that forty percent of Chief Investment Officers (CIOs) are pressuring CEOs to strengthen the balance sheets of their organizations. The appetite for higher capital expenditures has decreased to 24%, the lowest level since November 2023, notwithstanding the continued AI boom.

Regarding monetary policy, 93% of respondents anticipate lower short-term rates and 59% expect lower bond yields. 55% of respondents view the current circumstances as “too restrictive,” the highest level since 2008. A net 63% of investors still think that the Japanese yen is cheap, notwithstanding recent volatility in the currency.

Given the elevated volatility, immediate dangers, and top-heavy index that is weighed down by mega-cap stocks, BofA strategists advise against investing in the index outright and instead advocating for active stock picking.

“Historically, one of the best hedges against volatility has been via high-quality stocks,” they write.

The strategists note that some Tech stocks may still prove to be long-term winners and may now present more alluring entry positions, even as they see new opportunities outside the Tech sector as earnings growth broadens.