Bank of America September Fund Manager Survey: Investor Sentiment Rises to Seven-Month High, Growth Expectations Significantly Improve

The upward trend in global stock markets may continue in the short term. A recent survey by Bank of America shows that investor sentiment has reached its most optimistic level since February 2025, driven by a significant rebound in global economic growth expectations and bets on substantial interest rate cuts.

According to Wind Trading Desk, based on the latest global fund manager survey report released by Bank of America strategist Michael Hartnett, fund managers' cash positions have remained at a low of 3.9% for the third consecutive month, while the net increase in stock allocation has reached a seven-month high.

Market risk appetite has also undergone a significant shift. Concerns about a "trade war triggering a global recession," once seen as the number one risk, have significantly weakened, with attention dropping from 29% in August to 12%. Instead, "second wave inflation" has become the tail risk that fund managers are most worried about. The outlook for economic growth has seen the strongest improvement in nearly a year, with only a net 16% of investors expecting the economy to weaken in the future.

This shift is accompanied by strong expectations for the Federal Reserve's easing policies. The survey shows that nearly half (47%) of respondents expect the Federal Reserve to cut interest rates four times or more in the next 12 months. Hartnett also added that investors' stock exposure has not yet reached extreme levels, indicating that the current upward trend may continue for some time.

Significant Improvement in Growth Expectations, Bullish Sentiment Prevails

The survey results indicate that global economic growth expectations have seen the largest monthly jump since October 2024, with a net 16% of fund managers expecting economic weakness, down from a net 41% in August.

67% of respondents expect a "soft landing," 18% expect "no landing," and only 10% expect a "hard landing." In contrast, the proportion expecting a hard landing in August was only 5%. 77% of fund managers expect a "stagflation" environment, characterized by below-trend growth and above-trend inflation. Hartnett pointed out that pessimistic expectations for economic growth are rapidly fading, providing a solid foundation for a bullish stance in the stock market.

Hartnett believes that due to the weakening concerns about a "recessionary trade war," there are "bull market advocates everywhere" in the market. Meanwhile, in terms of positioning, although stock allocations have risen to a seven-month high, they have not reached an "extreme" crowded level, suggesting that there is still room for further capital inflows, thereby supporting the continued rise of the stock market. The productivity improvement expectations brought by AI also support corporate profit prospects, with about half of the participants in the survey stating that artificial intelligence has been enhancing productivity

Federal Reserve Rate Cut Expectations Become Key Support

Expectations for a shift in the Federal Reserve's monetary policy are another key pillar supporting the current market optimism. The Federal Reserve will hold a two-day policy meeting this Wednesday (September 17), and the market widely expects the start of a new round of easing.

A Bank of America survey shows that 47% of fund managers expect the Federal Reserve to cut rates 4 times or more in the next 12 months, with 30% expecting 4 cuts, 17% expecting 2 cuts, and 29% expecting 3 cuts. This expectation is significantly higher than previous levels.

30% of respondents expect Waller to be nominated as the next Federal Reserve Chairman, up from 20% in August. 15% expect Harker, 13% expect Waller, and 8% expect Bostic.

The divergence between short-term interest rate expectations and inflation expectations continues to widen. Only 6% of respondents expect short-term rates to rise, consistent with the average level over the past 6 months, but the proportion expecting inflation to rise has increased from 9% in September 2024 to 49%. A net 23% of investors expect long-term rates to rise, the highest since August 2022.

Concerns Remain Over Inflation and Federal Reserve Independence

Despite the optimistic market sentiment, investors have not completely ignored potential risks. The survey shows that the resurgence of inflation (26% of respondents) is seen as the biggest tail risk.

Following closely are concerns about the decline in the Federal Reserve's independence and the depreciation of the dollar (24%). Previously, strategists from JP Morgan and Goldman Sachs warned that as President Trump increases pressure on the central bank to cut rates and his dismissal of Governor Lisa Cook, investors are increasingly worried about the Federal Reserve's independence.

Survey Reveals Other Key Dynamics

This survey was conducted from September 5 to 11, interviewing 165 fund managers who manage a total of $426 billion in assets. Other key findings include:

• Risk Appetite: A net 15% of investors have taken below-normal risk levels, an improvement from a net 19% in August.
• Corporate Strategy Preferences: 39% of respondents want companies to increase capital expenditures, the highest since December of last year; while only 27% want companies to focus on improving balance sheets, the lowest since February 2022
• Most Crowded Trades: Long on the "Seven Giants" (42%), Long on Gold (25%), Short on the US Dollar (14%), and Long on Cryptocurrencies (9%).

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk