Ultimate magazine theme for WordPress.

Investors haven't been this excited about the economy in two years

As the stock market's rise over the past month shows, investors are more optimistic than they have been in more than two years.

Broad-based investor sentiment reached a reading of 4.1 in Bank of America's February global fund manager survey released on Tuesday, up from 2.9 the previous month and the highest since January 2022. Bank of America noted that the Cash holdings, equity allocation and economic growth expectations all played a key role in improving sentiment.

According to Bank of America's Global Fund Manager Survey, equity market sentiment has increased but is still well below levels at other points in recent history.

According to Bank of America's Global Fund Manager Survey, equity market sentiment has increased but is still well below levels at other points in recent history.

The survey of around 200 participants with assets under management of more than $500 billion showed that two-thirds of investors expect a soft landing for the economy this year where inflation returns to the Federal Reserve's 2% target without a severe economic downturn. Above all, Investors are no longer predicting a global recession for the first time since April 2022.

The more positive outlook comes from the fact that economic data in the US has largely surprised positively this year. And some believe this will continue, with the Atlanta Fed currently forecasting economic growth of 3.4% annualized in the first quarter. Last week, the positive growth outlook and few signs of a deterioration in the labor market led Deutsche Bank to scale back its long-held forecast that the U.S. economy would enter a recession.

“When we first adopted a mild recession as our baseline forecast, a key element was that, given an economy far from the Fed's goals, the history of central bank-induced disinflation showed that the path to a soft landing “We now expect the economy to end up on this narrow path and that a recession will accompany it.” limited costs on the labor market can be averted.”

As Luzzetti and others have dialed back their recession calls, investors have become more optimistic about the overall outlook for the stock market in 2024, with many expecting interest rates to be lower. A record 46% of investors described global financial policies as “too stimulative.”

The story goes on

This optimism was reflected across investor positioning expressed in the survey. Investor allocation to US stocks reached its highest level since November 2021, while allocation to technology stocks reached its highest level since August 2021.

This is due to investors increasingly exiting cash positions. Fund managers' average cash holdings now stand at 4.2%, down 55 basis points from the January survey. Bank of America found that a decline in cash allocations of more than 50 basis points over the next three months was typically followed by an average return of 4% for stocks.

However, the decline came with a caveat, as a value of 4% of cash allocations or less typically triggers a “sell” signal, according to BofA.

The exuberance evident in Tuesday's report sparked heated debate on Wall Street, as the S&P 500 recently broke above 5,000 for the first time ever.

“The way things are going, our optimistic forecast for the S&P 500 of 5,500 at the end of this year could materialize in just a few months,” John Higgins, chief markets economist at Capital Economics, wrote in a note on Monday. “However, we doubt the rally would end there.”

Higgins pointed out that valuations are lower than they were during the tech bubble of the late 1990s, and therefore stocks will likely need to rise further before the proverbial stock bubble bursts. However, JPMorgan takes a different stance.

“Given that the market is priced to perfection, the internal structures of the stock market are unhealthy given the extreme concentration, investor positioning is high, valuations are high, the Federal Reserve is pushing back on market restraint, and inflationary and geopolitical Risks are underestimated, we believe the risk-reward trade-off remains unfavorable for stocks that do so.” “Trading is at all-time highs,” JPMorgan chief market strategist Marko Kolanovic wrote in a note to clients on Monday evening.

Traders work on the floor of the New York Stock Exchange on January 31, 2024 in New York, USA.  US stocks closed lower on Wednesday.  The Dow Jones Industrial Average fell 317.01 points, or 0.82 percent, to 38,150.3.  The S&P 500 fell 79.32 points, or 1.61 percent, to 4,845.65.  The Nasdaq Composite Index lost 345.89 points, or 2.23 percent, to 15,164.01.  (Photo by Michael Nagle/Xinhua via Getty Images)Traders work on the floor of the New York Stock Exchange on January 31, 2024 in New York, USA.  US stocks closed lower on Wednesday.  The Dow Jones Industrial Average fell 317.01 points, or 0.82 percent, to 38,150.3.  The S&P 500 fell 79.32 points, or 1.61 percent, to 4,845.65.  The Nasdaq Composite Index lost 345.89 points, or 2.23 percent, to 15,164.01.  (Photo by Michael Nagle/Xinhua via Getty Images)

Traders work on the floor of the New York Stock Exchange in New York, USA on January 31, 2024. (Michael Nagle/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for the latest stock market news and in-depth analysis, including stock-moving events

Read the latest financial and business news from Yahoo Finance

Comments are closed.

%d bloggers like this: