Bank of America's August Global Fund Manager Survey reveals a shift in investor sentiment, with growing concerns about the Federal Reserve's role in preventing a potential recession.
According to the survey, 60% of investors now believe that the Fed needs to implement four or more rate cuts over the next 12 months to ensure the economy avoids a downturn.
This marks a notable increase in expectations for monetary easing compared to previous months. "Investors now think Fed needs to cut harder to guarantee no recession," said BofA.
The bank adds that investor optimism about a "soft landing" has risen to 76%, up from 68% in the previous month, indicating confidence that the economy can avoid a severe recession.
However, the probability of a "hard landing" has also increased slightly, from 11% to 13%, reflecting persistent uncertainty.
BofA notes that global growth expectations have declined sharply, with optimism dropping from a net -27% to -47%, the lowest level since May 2022.
This decline is said to have been partly driven by concerns about China's economic outlook, which has reached its lowest point in over a year.
The bank states that despite the ongoing AI boom, only 24% of Chief Investment Officers (CIOs) are calling for higher capital expenditures, the lowest level since November 2023. Instead, 40% of CIOs want CEOs to focus on improving balance sheets.
In terms of asset allocation, BofA reveals there has been a defensive rotation into bonds, cash, and healthcare, while investors have reduced exposure to stocks, particularly in Japan, Europe, and the tech sector.
The BofA survey also highlights a continued preference for U.S. large-cap growth stocks, with the "long Magnificent 7" trade remaining the most crowded, though slightly less so than before.
Overall, the survey underscores the growing belief that more aggressive Fed action is necessary to secure economic stability.