Bank of America Survey: Investors remain optimistic about US stocks, with economic recession being the biggest tail risk
Investors' optimism towards US tech giants and expectations of an economic soft landing have not diminished. Investors are shifting towards bonds and cash, withdrawing funds from stocks, but bullish bets on tech stocks remain the most crowded trade. Despite a decrease in expectations for global growth, expectations for a soft landing are rising. A US economic recession has become the biggest tail risk. The largest stock allocation by respondents still remains concentrated in the US, with the largest single-month drop in exposure to Japanese stocks
According to a global survey by Bank of America, despite the turmoil in global financial markets, investors' optimism towards US tech giants and their expectations of an economic soft landing have not diminished.
The survey was conducted from August 2nd to August 8th, covering the previous week's "Black Monday." The survey revealed that investors are shifting towards bonds and cash, withdrawing funds from stocks, but the bullish bets on the "Fab 7" tech stocks remain the most crowded trade, although this bet has decreased after the sell-off.
Large-cap growth stocks dominated by tech stocks are still seen as potential leaders of a new US stock bull market, although investor confidence has dropped from 47% in July to 36%.
Strategist Michael Hartnett wrote in the report, "The core optimism towards a soft landing and US large-cap growth stocks remains unchanged. Investors just now believe that the Fed needs to cut rates more significantly to ensure no economic recession."
The survey polled 189 participants with total assets of $508 billion, showing an increase in expectations of a soft landing from 68% in July to 76%. However, participants' expectations for global growth have significantly declined, with currently 47% of respondents expecting economic weakening in the next 12 months. The US economic recession has replaced geopolitical conflicts as the biggest tail risk.
Earlier, concerns about overvaluation and fears that the Fed's slow rate cuts may not prevent an economic recession troubled tech stocks, leading to a sharp decline in US stocks. Although the tech-heavy Nasdaq 100 index has recovered all losses from last week, it remains about 10% below its July record high.
The Bank of America survey shows that respondents' equity allocations have dropped to a net 11% overweight, the largest monthly decline since September 2022. Meanwhile, exposure to bonds has increased from a net 9% underweight in July to a net 8% overweight, the highest since December last year.
The largest stock allocations of these respondents are still concentrated in the US, while their exposure to Japanese stocks has seen the largest single-month decline since April 2016