According to a monthly fund manager survey released by Bank of America on Tuesday, global fund managers significantly increased equity allocations in May, with the overweight proportion reaching a record high, buoyed by optimistic earnings growth expectations and the prospect of Federal Reserve interest rate cuts. Benefiting from strong corporate earnings reports and sustained market optimism regarding the investment outlook from large-scale corporate deployment in artificial intelligence (AI), global stock markets continued to break historical highs throughout May. Despite international oil prices stabilizing above $100 per barrel and US-Iran negotiations reaching a stalemate, which weighed on global bond markets, equities still demonstrated resilient strength.
The data shows that a net 50% of fund managers chose an "overweight" stance on stocks, a sharp increase from 13% the previous month. The average institutional cash allocation fell from 4.3% to 3.9%. Only 4% of respondents anticipated a hard landing scenario characterized by a sharp contraction in both growth and employment, while a significant 39% believed the economy would achieve a smooth "no landing" situation.
This BofA survey was conducted from May 8 to 14, polling 200 asset management professionals with a combined asset under management of $517 billion.
**Market Shift Following Survey Completion**
It is noteworthy, however, that since the survey concluded on May 14, global financial markets have undergone a significant shift. The latest US inflation data came in higher than expected across the board, with the core CPI year-on-year increase rebounding to 3.8%. The tail risk of "secondary inflation," identified as the top concern by 40% of survey respondents, appears to be materializing. The resurgence in inflation has also completely dashed market hopes for Fed rate cuts within the year. According to the latest data from the CME FedWatch Tool, the market has largely ruled out the possibility of a Fed rate cut before year-end, with a 39% probability now priced in for at least a 25-basis-point hike by December.
Consequently, global stock markets have experienced a synchronized and substantial correction. The S&P 500 has retreated more than 2% from its high on May 14, while the Nasdaq index has fallen over 3%, led by declines in technology stocks. Simultaneously, the yield on the 30-year US Treasury has surged rapidly and is quickly approaching the 6% target level indicated by 62% of survey respondents. Only 20% of respondents in the survey predicted yields would fall back to 4%.
Furthermore, tensions in the Strait of Hormuz, which were previously hoped to be resolved shortly, have escalated recently. The survey showed that 66% of respondents believed the shipping tensions in the Strait of Hormuz would ease within the coming months.