Bank of America pointed out in its latest monthly global fund manager survey that as expectations for global economic growth fell to the lowest level in eight months, investors increased their allocation to cash in August and reduced their overweight positions in stocks.

However, the volatility in global financial markets (referring to "Black Monday") has not weakened investors' optimism towards US technology giants or their expectations of a soft landing for the global economy.

From August 2nd to 8th, Bank of America surveyed fund managers from 189 asset management companies worldwide, covering assets under management of $508 billion. The survey period covered the most turbulent period of the past week, and investors defensively rotated into bonds and cash while selling stocks, but betting on the long side of the "magnificent 7" remains the most crowded trade.

Stocks are not popular.

Specifically, the survey showed that only 31% of respondents said they increased their holdings of stocks in August, down from 51% in July, while their average cash level was 4.3% of assets under management, up from 4.1% a month earlier. Bank of America attributed this shift to weak U.S. July employment data and the unexpected rate hike by the Bank of Japan.

In addition, equity allocation fell to a net long position of 11%, the largest monthly decline since September 2022. Meanwhile, bond allocation increased from the net reduction of 9% in July to the net addition of 8%, the highest allocation since December last year.

By region, American stocks were the most allocated, while fund managers' exposure to Japanese stocks saw the biggest monthly decline since April 2016. Investors switched from a net long position of 7% in July to a net short position of 9% in August, the first net reduction since July 2023.

Finally, large-cap growth stocks, especially technology stocks, are still seen as the potential "leaders" of the new US stock market bull market, although the percentage of fund managers who hold this belief has decreased from 47% in July to 36%.

On the economic front, the survey found that 47% of respondents expect the global economy to weaken in the next 12 months, a 20 percentage point decrease from July. In addition, 76% of respondents said they still expect a "soft landing" for the global economy, meaning a gradual slowdown rather than a more severe "hard landing" or a non-slowdown scenario.

Furthermore, "US economic recession" has replaced "geopolitical conflict" as the biggest tail risk in the latest survey.

"The core optimism towards a soft landing and large-cap growth stocks in the US has not been shaken, but investors now believe that the Fed needs to increase its rate cuts to ensure no recession," wrote Michael Hartnett, chief strategist at Bank of America.

The survey found that 60% of respondents expect the Fed to cut rates four or more times in the next 12 months.

Editor/Lambor