Bank of America-Hartnett Forecasts Continued Market Surge - Underlying Reasons Detailed
The U.S. Federal Reserve's two-day policy meeting commenced today, with financial markets fully pricing in a 25 basis point interest rate cut. This move comes as investors are betting that the Fed will take action to avert a potential recession.
According to a recent survey conducted by Bank of America (BofA), about 46% of participants expect the Fed to make four or more rate cuts in the next 12 months. This sentiment is shared by strategists from institutions like Morgan Stanley, who anticipate additional rate cuts, albeit with careful consideration of economic indicators and political pressures.
The survey, which was conducted from September 5-11, involved 165 investors managing a total of $426 billion. It revealed that net 28% of global fund managers are overweight in stocks, marking the highest level in seven months. Notably, long positions in cryptocurrencies are held by 9% of investors.
The survey also highlighted concerns about the Fed's independence, with about 24% of participants citing a less independent Fed and dollar depreciation as worries. Strategists at JPMorgan and Goldman Sachs have expressed similar concerns, noting that investors are increasingly anxious about potential political influences on the Fed's decisions.
Despite these concerns, Michael Hartnett of BofA remains optimistic about global stock markets. He believes they are poised for further growth, with 'bulls everywhere' and the risk of a 'recessive trade war' receding. Hartnett also noted that net 15% of investors are taking less risk than usual, an improvement from August's net 19%.
The average cash balance remained at 3.9% for the third consecutive month, suggesting a cautious approach by investors. However, about 39% of investors want companies to increase their capital expenditure, the highest level since December. This indicates a willingness to invest, despite the economic uncertainties.
Long positions in gold are popular among 25% of investors, reflecting a desire for safe-haven assets. The MSCI All-Country World Index has hit new record highs, driven in part by renewed enthusiasm for artificial intelligence.
The survey also revealed that net 16% of investors now expect an economic slowdown, a significant drop from previous levels. This, coupled with the Fed's expected rate cuts, suggests that the central bank is taking steps to support the economy.
President Donald Trump has been vocal about his desire for the Fed to cut rates, although his attempts to remove Fed Governor Lisa Cook were unsuccessful. The ongoing dialogue between the White House and the Fed is a factor that strategists consider when making their projections.
In conclusion, the U.S. Fed's policy meeting is taking place amidst anticipation for a rate cut, as investors bet that the move will help avert a recession. The survey conducted by BofA provides insights into the current investment landscape, revealing cautious optimism, concerns about the Fed's independence, and a shift in focus away from balance sheets.
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