Bank of America's August Global Fund Managers Survey revealed a shift in investor sentiment, with growing concern over the role of the Federal Reserve (the Fed) in preventing a potential recession.
According to the survey, 60% of investors now believe that the Fed will need to implement four or more interest rate cuts over the next 12 months to ensure the economy avoids a recession.
This marks a significant increase in expectations of monetary easing compared to previous months. "Investors now think the Fed needs to cut rates more significantly to ensure there is no recession," BofA said.
The bank added that investor optimism for a soft landing had risen to 76%, up from 68% the previous month, indicating confidence that the economy can avoid a severe recession.
However, the probability of a hard landing also increased slightly, from 11% to 13%, reflecting continued uncertainty.
BofA noted that global growth expectations have declined significantly, with optimism falling from -27% to -47%, the lowest level since May 2022.
The decline is said to have been driven in part by concerns over China's economic outlook, which has hit its lowest level in more than a year.
The bank notes that despite the ongoing AI boom, only 24% of Chief Investment Officers (CIOs) are calling for higher capital spending, the lowest level since November 2023. Conversely, 40% of CIOs want Chief Executive Officers (CEOs) to focus on improve the balance sheet.
In terms of asset allocation, BofA revealed there has been a defensive rotation into bonds, cash, and healthcare, while investors have reduced exposure to stocks, particularly in Japan, Europe, and the technology sector.
Overall, the survey underscores a growing belief that more aggressive Fed action is necessary to ensure economic stability.
