Global Investor Sentiment Shifts Amid Economic Outlook and Geopolitical Risks

Investor optimism is currently buoyed by expectations of potential U.S. interest rate cuts, aiming to prevent a severe economic downturn, despite escalating geopolitical risks, according to the latest survey by Bank of America.

Conducted from July 5-11 among 242 fund managers overseeing $632 billion in assets, the survey indicated a notable downturn in global growth expectations, dropping sharply from -6% to -27% since March 2022.

This shift reflects mounting concerns about a weaker U.S. economy and a consensus that current monetary policies are the tightest since the 2008 financial crisis.

The survey highlighted that 68% of respondents foresee a “soft landing” scenario for the global economy, expecting a gradual easing of both growth and inflation.

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However, there is a growing sentiment that the risks of a more severe economic slowdown, described as a “hard landing,” are underestimated due to recent declines in U.S. consumer spending, labor market conditions, and government expenditures. Consequently, the survey suggests a bullish outlook towards bonds and gold for the latter half of 2024.

Geopolitical tensions, particularly in the United States and globally, have emerged as significant factors driving market sentiment. Recent events such as France’s indecisive election outcome, challenges to U.S. President Joe Biden’s candidacy following a televised debate incident, ongoing conflicts such as Russia’s actions in Ukraine and Israel’s operations in Gaza, and heightened tensions between China and Taiwan, have heightened market uncertainty.

The survey indicated a shift in primary concerns from higher inflation to geopolitical conflicts as the largest tail risk for the investment outlook, marking a notable change after six months.

Moreover, the survey highlighted investor preferences with overweight positions in stocks and underweight positions in bonds, alongside reduced exposure to European Union equities. Managers also indicated a significant underweight position in real estate investment trusts (REITs), while showing a newfound overweight stance in utilities, typically viewed as underperformers during periods of high interest rates.

Additionally, the survey pointed out that the “Magnificent Seven” group of top U.S. stocks, including Apple, Microsoft, and Nvidia, remains the most crowded trade, underscoring investor preference for large-cap tech stocks.

Alexander Stefanov