Bank of America September Fund Manager Survey: Investor sentiment rises to a seven-month high, growth expectations improve significantly

```

The global stock market rally may continue in the short term. A new 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 rate cuts.

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

There has also been a marked shift in market risk appetite. Concerns about a "trade war sparking global recession," previously seen as the top risk, have diminished sharply, with attention dropping from 29% in August to 12%. Replacing this, the "second wave of inflation" has become the most feared tail risk among fund managers. Views on economic growth have improved the most in nearly a year, with only a net 16% of investors now expecting the economy to weaken in the future.

This shift is accompanied by strong expectations for looser Fed policy. The survey shows that nearly half (47%) of respondents expect the Fed to cut interest rates four times or more in the next 12 months. Hartnett also added that investors' equity exposure has not reached extreme levels, suggesting that the current rally may persist for some time.

Growth Expectations Improve Sharply, Bullish Sentiment Prevails

The survey showed the largest monthly jump in global economic growth expectations since October 2024, with a net 16% of fund managers expecting the economy to weaken, down significantly from a net 41% in August.

67% of respondents expect a "soft landing," 18% expect "no landing," and only 10% expect a "hard landing." By contrast, in August, only 5% expected a hard landing. 77% of fund managers expect a "stagflation" environment, that is, below-trend growth and above-trend inflation. Hartnett pointed out that pessimistic expectations for economic growth are fading rapidly, providing a solid foundation for a bullish stance in equities.

Hartnett believes that as worries over a "recessionary trade war" fade, "bulls abound" in the market. At the same time, in terms of positioning, even though equity allocation has risen to a seven-month high, it has not reached an "extreme" crowded level, suggesting further funds could flow in, which would support further equity gains. Expectations of productivity gains from AI also support the earnings outlook, with about half of survey participants indicating that AI is already enhancing productivity.

Fed Rate Cut Expectations Seen as Key Support

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

Bank of America’s survey shows 47% of fund managers expect the Fed to cut rates four times or more in the next 12 months, with 30% expecting four cuts, 17% expecting two, and 29% expecting three. This expectation is noticeably higher than before.

30% of respondents expect Waller to be nominated as the next Fed Chair, up from 20% in August. 15% expect Hassett, 13% expect Walsh, and 8% expect Besant.

The divergence between short-term interest rate expectations and inflation expectations continues to widen. Only 6% of respondents expect short-term rates to rise, in line with the average over the past six 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 market’s optimism, investors have not completely ignored potential risks. The survey shows a resurgence of inflation (chosen by 26% of respondents) is seen as the biggest tail risk.

This is closely followed by worries about declining Fed independence and US dollar depreciation (24%). Previously, strategists at JPMorgan and Goldman Sachs also warned that as President Trump ramps up pressure on the central bank to cut rates, and with his move to dismiss board member Lisa Cook, investors are increasingly concerned about the Fed’s independence.

Survey Reveals Other Key Developments

This survey was conducted from September 5 to 11, involving 165 fund managers collectively managing $426 billion in assets. Other key findings include:

Risk Appetite: A net 15% of investors are taking lower-than-normal risk, better than the net 19% in August.Corporate Strategy Preferences: 39% of respondents want companies to increase capital expenditures, the highest since December last year; just 27% want firms to focus on improving balance sheets, the lowest since February 2022.Most Crowded Trades: Long the "Magnificent Seven" (42%), long gold (25%), short the US dollar (14%), and long cryptocurrencies (9%).

Risk Warning and DisclaimerThe market is risky. Investments must be made cautiously. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial situation, or needs. Users should consider whether the opinions, views, or conclusions mentioned in this article are suitable for their particular situation. Investing accordingly is at your own risk. ```