The Cyclical Boom Has Peaked, Says $800 Billion In AUM

Fund managers are demonstrably less enthusiastic about reflation and growth, suggesting the macro narrative that dominated in the six months following the US election may have lost some of its appeal.

That was the main takeaway from the July vintage of BofA’s closely-watched Global Fund Manager survey, conducted from July 2 through July 8. Some 270 panelists with $805 billion in AUM participated.

It’s little wonder that yield curve expectations are falling “drastically,” as the bank’s Michael Hartnett put it Tuesday. After all, the curve was pancaked in the wake of the June FOMC as a positioning unwind conspired with a reassessment of the Fed’s reaction function to weigh on long-end yields, creating a bad growth optic.

You can pretty much write the rest of the script without even consulting the accompanying color and visuals from this month’s poll.

Growth expectations (i.e., the net % saying the global economy will improve) dropped to 47% from a high of 91% in March (figure below). Hartnett said the “cyclical boom has peaked.”

Relatedly, profit expectations are rolling over, with a net 53% of respondents saying earnings will improve, down from 89% just four months ago.

“Global GDP and EPS readings show macro momentum [is the] weakest since Q3 of 2020,” Hartnett remarked.

At the same time, optimism around more fiscal stimulus in the US is waning. Fund managers now expect “just” $1.4 trillion in infrastructure spending, a half-trillion less than April’s survey.

Those expecting the final price tag on a US infrastructure package to be less than $1 trillion jumped sharply from June, while the figure corresponding to participants who expect a package of $2 trillion or more fell fairly dramatically (figure below).

You can thank Joe Manchin. I’m just kidding. But not really.

Finally, inflation expectations plummeted in the July poll. A net 22% of investors expect higher global inflation in the next 12 months, which Hartnett noted is “down 42% MoM.”

That, as US CPI posted yet another dramatic rise in data out Tuesday. 70% of respondents in the BofA poll say inflation is transitory. That was essentially unchanged from the June survey.