According to the May monthly fund manager survey released by Bank of America on Tuesday, hopes that the Federal Reserve will cut interest rates during the year have driven investors' optimism to the highest level since November 2021. This indicator is determined by a combination of factors such as cash, stock allocation, and economic growth expectations of the fund managers surveyed.

The survey of global fund managers managing $562 billion in assets found that 82% of respondents expect the Federal Reserve to cut interest rates for the first time in the second half of the year.

According to the survey, the surveyed fund managers' cash level as a share of total assets fell from 4.2% in the previous few months to the lowest level in three years, and the share allocation ratio reached the highest level since January 2022. This dynamic generally reflects strong investor confidence.

However, their global economic growth forecast declined for the first time since November last year. 9% of respondents expected the economy to weaken in the next 12 months, while in the April survey, the proportion of respondents who expected the economy to strengthen was 11%.

Still, most investors don't expect a recession. Bank of America said, “As far as the global economy is concerned, 78% of respondents said a recession is' less likely 'within the next 12 months, which is in line with last month's expectations. For the fourth month in a row, the percentage of people who think the global economy is' unlikely 'to recession (78%) is higher than the proportion that thinks the economy is' likely 'to decline (22%).

Bank of America strategist Michael Hartnett (Michael Hartnett) pointed out that betting on interest rate cuts rather than confidence in profit prospects has brought investors' optimism to the highest point in two and a half years, which means that if evidence of stagflation becomes a reality, the stock market will be affected.

“Risk assets are vulnerable to further evidence of stagflation,” Hartnett wrote in the report.

Following March$S&P 500 Index (.SPX.US)$After reaching a record high, the rise in US stocks has slowed somewhat. As economic growth shows signs of slowing down, inflation remains high. Traders are preparing for consumer price data released by the US on Wednesday, which could reinforce or ease concerns about stagflation.

According to the survey, rising inflation remains the biggest tail risk facing investors, followed by a geopolitical and economic hard landing.

In terms of trading congestion, the survey showed that respondents still think “going long for the Big Seven” is the most crowded deal. The “Big Seven” refers to the seven companies with the highest market capitalization in the US, including$Apple (AAPL.US)$,$Microsoft (MSFT.US)$and$Amazon (AMZN.US)$etc. Furthermore, “going long on the dollar” became the second most crowded transaction.

edit/emily