Fund managers have reversed their predictions of a U.S. recession for the first time in a year and a half, according to a widely followed survey. The monthly global fund manager survey conducted by Bank of America shows that the percentage of respondents expecting a global recession within the next twelve months has turned negative, marking the first instance since April 2022.
The survey, which included 249 panelists managing $656 billion in assets, is renowned not only for representing market views but also for providing contrarian ideas.
Although the percentage of fund managers anticipating a stronger economy over the next year remains negative at -25%, it is the most optimistic level since February 2022. The survey also reveals that only 11% expect a hard landing, while a majority still believes that a soft landing is the most likely scenario for the global economy.
Buoyed by this economic optimism, fund managers decreased their cash holdings to 4.2% in February from 4.8% in January, nearing the Bank of America contrarian sell signal, which triggers when cash falls to or below 4%.
Furthermore, fund managers identified the "long Magnificent Seven" trade as the most overcrowded, with 61% of respondents selecting it. This represents the highest level since October 2022 when 64% identified the long position on the U.S. dollar as the most crowded trade.
In second place among crowded trades is shorting Chinese equities, with 25% of respondents favoring this strategy.
Despite recent warnings from New York Community Bancorp NYCB, Aozora Bank 8304, AOZOY, and Deutsche Pfandbriefbank PBB, U.S. commercial real estate remains the leading candidate for a systemic credit event.
Fund managers have made significant changes in their allocations, rotating into telecom, broad stocks, technology, and U.S. investments while moving away from emerging markets, real estate investment trusts, staples, and cash.
Overall, investors hold a bullish stance on the tech and healthcare sectors, as well as U.S. stocks and telecom. Conversely, they express bearish sentiment toward the U.K., REITs, utilities, energy, and banks.
On Monday, the S&P 500 closed just below its all-time high, marking a 21% increase over the past year.
Boosted by growing optimism about the U.S. economy, the yield on the 10-year Treasury has risen by 31 basis points since the start of the year.