Investor optimism hits four-year high, BofA survey finds

Investing.com -- Optimism has surged to its strongest level in nearly four years, according to Bank of America’s December Global Fund Manager Survey, as cash allocations fall to record lows and expectations for a soft landing dominate sentiment.

Analyst Michael Hartnett said the firm’s latest survey is “the most bullish FMS of past 3.5 years,” with “macro optimism highest since Aug’21” driven by a belief that policymakers will “run-it-hot.”

Allocation to stocks and commodities has climbed to the highest level since February 2022, while cash holdings dropped to a record-low 3.3%, down from 3.7%, according to BofA.

Hartnett noted that the December survey pushed its Bull & Bear Indicator to 7.9, “very close to ‘sell signal,’” warning that “bullish positioning remains biggest headwind for risk assets.”

Profit expectations were cited as a key driver, with BofA stating that expectations are “highest since Aug’21,” as 57% of respondents forecast a macro soft landing, 37% expect no landing, and a record-low 3% anticipate a hard landing.

On policy, BofA revealed that liquidity conditions are rated the “3rd best of past 17 years,” even as most investors since April 2022 expect higher bond yields.

The survey also found that 69% of investors expect Kevin Hassett to be the next Fed chairman.

Crowding risks are said to be rising, with BofA noting the “AI bubble (37%)” is seen as the biggest tail risk, while private credit and hyperscaler capital expenditure are viewed as the most likely sources of a credit event.

The most crowded trades are “long Magnificent 7 (54%)” and “long gold (29%).”

From an asset allocation perspective, BofA believes investors are the “most OW stocks since Dec’24,” the “most UW bonds since Oct’22,” and the “most OW commodities since Sep’22.”

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