Bullish sentiment is on the rise among fund managers surveyed by Bank of America. However, according to an AAII survey, everyday investors are displaying the most bearish outlook since 2023. The disparity in views is striking, with big institutions expressing high optimism for international markets while retail investors and fund managers seem to be observing the same stock market through different lenses.
The most recent Bank of America survey reveals that risk appetite among major investors has surged to a 15-year high, accompanied by a significant drop in cash levels, which are now at their lowest since 2010. The survey indicates that 35% of managers are “overweight” in stocks compared to other investments, and 34% believe that global equities will be the top-performing asset class this year.
Conversely, everyday traders appear less sanguine. The AAII survey shows that 47.3% of investors hold a bearish view for the next six months, a level deemed “unusually high” and reminiscent of late 2023. Despite the S&P 500’s impressive 25% gain in the ensuing year, investors now face new challenges in 2025, such as policy disruptions and a potential inflationary upsurge.
In the latest AAII survey, approximately 57% of respondents anticipate that US tariffs could stifle economic growth and lead to higher prices. With the Trump administration’s protectionist policies causing market uncertainty, there are concerns that a tit-for-tat trade conflict may impact earnings for S&P 500 companies.
While fund managers cite a trade war as their primary worry, they perceive it as a less likely tail risk. 39% of respondents see the scenario of reciprocal tariffs triggering a global recession as the most substantial tail risk. Despite this, fund managers remain relatively optimistic, with global recession expectations at a three-year low and 77% preparing for US interest rate cuts in 2025.
February saw a rise in investor optimism to 6.4 from 6.1, indicating an ongoing positive trend albeit below the “frothy” level seen in December, as described by Bank of America. Views on US stocks versus international markets have shifted, with 89% of survey respondents considering US equities overvalued, the highest level since 2001.
Identified as the most crowded trade in the market, exposure to US tech mega-caps is viewed cautiously, with respondents expecting the EuroStoxx index to outperform the Nasdaq in 2025. Moreover, there is growing optimism regarding China’s economic growth prospects for the current year.
(Source: Adapted from an article on Business Insider)
