Even though the Fed has made it clear there will be no rate rise until it is really convinced that inflation is falling sustainably, big global investors are ignoring that and are off in their own world of 'Rate Cuts Loom.'
And that flying in the face of current reality, this belief in looming rate cuts has made these big investors the most bullish since November 2021, according to Bank of America's monthly fund manager survey for May.
As a result, cash levels fell to a three-year low of 4% from 4.2% in April and 5.3% last July, and share allocation among investors was at the highest since the start of 2022 — or nearly two and a half years.
The survey of global fund managers found 82% expect the first rate cut by the Federal Reserve in the second half, while 78% say a recession is unlikely over the next 12 months.
But while fears of a recession have receded, concerns for a slowdown in global growth haven’t, and expectations for global growth fell for the first time since November, with a net 9% expecting a weaker economy over the next year compared with 11% that expected a stronger economy in April.
"On the global economy, 78% of FMS-surveyed investors say a recession is 'unlikely' within the next 12 months, in line with last month’s expectations," BofA said.
"For the fourth month in a row, a greater share of investors see a global recession as 'unlikely' (78%) than 'likely' (22%)," the bank said.
In terms of crowded trades, the survey showed investors still believe "long Magnificent Seven" is the most crowded — referring to the seven big US tech companies — but that’s ahead of the still-to-be-released quarterly figures from Nvidia next week.
"Long the dollar" was the second most-crowded trade, replacing "short Chinese equities," the survey showed.
