Professional investor sentiment took a hit from recent market disarray, but faith in a soft landing never really waned.
That was the overarching message from the August installment of BofA’s closely-watched Global Fund Manager survey, released on Tuesday.
The bank’s Michael Hartnett said macro optimism was intact on the heels of a vol-shock brought on by recession concerns in the US and an ongoing unwind of yen-funded carry trades. As the figure below shows, “hard landing”‘s share of the responses to one of the poll’s key macro questions remained very low even as it did manage to garner the highest share of the vote since January, eclipsing “no landing” for the first time in eight months.
At 76%, soft landing buy-in was the highest yet. Some might call that a contrarian indicator.
Note how “no landing” fell quickly out of favor. It captured nearly 40% in April following a succession of warm Q1 CPI prints and amid investor concerns that the Fed may have to delay rate cuts to 2025. Tellingly, peak “no landing” coincided with what, until these last two weeks, was 2024’s only material equity pullback.
To be sure, recent events did show up in the August edition of the survey. Global growth expectations dropped 20ppt MoM, for example. That’s a big move. In addition, cash levels moved up after nearly triggering a BofA contrarian “sell” signal at 4% (figure on the left, below).
Relatedly, the survey’s broadest measure of sentiment, which accounts for equity allocations, cash levels and growth expectations, fell fairly sharply to 3.7 from 5.0 (figure on the right).
“Investors OW in stocks [fell] from 51% to 31% [and] capex optimism drop[ped] to a nine-month low,” Hartnett went on, editorializing around some of the other findings from the survey, which also showed US recession concerns overtaking geopolitics to become the top tail risk.
Ultimately, though, “core optimism on a soft landing and US large-cap growth stocks was unbowed,” Hartnett said.
What accounts for that? What explains resilient sentiment in the face of August’s adversity? Simple: The Fed put. “Investors now think the Fed needs to cut harder to guarantee no recession,” Hartnett went on, adding that 60% now see at least 100bps of Fed cuts over the 12 months.
