An survey of fund managers published by Bank of America on Tuesday shows that due to the Fed's rate cuts, China's stimulus policies, and expectations of a soft landing for the US economy, global investors' optimism saw the largest increase since June 2020 in October.

The survey was conducted from October 4th to October 10th, with a total of 231 fund managers participating, overseeing assets worth $574 billion.

The survey shows that cash allocation decreased from 4.2% in September to 3.9%, stock allocation increased to 31%, and bond allocation decreased to 15%, hitting a record low.

Bank of America stated, 'Our most widely-followed indicator of confidence based on cash levels, stock allocation, and economic growth expectations (Fund Manager Survey) rose from 3.8 to 5.6, the largest monthly increase since June 2020.'

The survey shows that investors expect the upcoming US election to most likely impact trade policy (47%), followed by geopolitical issues (15%) and taxes (11%).

In terms of how investors allocate based on the soft landing scenario, the survey shows the largest increase in global equity allocation since June 2020.

"Sell signal" appears again.

However, according to the bank's own indicators, the sharp decline in cash levels has triggered the first reverse "sell signal" since June last year. Strategists led by Michael Hartnett wrote that stock allocation has significantly increased, while bond allocation decreased, with cash levels in global portfolios dropping from 4.2% last month to 3.9% in October, leading to a "sell signal" in global stock markets.

The bank stated: 'Since 2011, there have been 11 'sell' signals triggered, with a -2.5% return rate in the global stock market one month after the 'sell' signal, and a -0.8% return rate three months after the 'sell' signal.' Currently, Morgan Stanley Capital International Global Index has risen 0.6% year-to-date in October, approaching the sixth consecutive month of gains.

The bank stated, 'Bubbles are increasing.'

Driven by central bank interest rate cuts, economic recovery, and China's fiscal and monetary stimulus policies, after a round of volatility in early September, the global stock market continued its bullish trend. Boosted by the strength of the U.S. stock market, the MSCI Global Index hit a historic high on Monday.

The U.S. third-quarter earnings season also started strong, with major banks' financial reports released last week boosting market confidence. The S&P 500 index extended its five-week uptrend on Monday, marking the 46th historical closing high of the year.

This optimism is reflected in a significant shift among respondents towards emerging markets, non-essential goods, and industrial stocks, while abandoning defensive sectors like daily essentials and utilities. Surveys indicate that the biggest winners of China's stimulus plan are emerging market stocks and commodities, while the biggest losers are government bonds and Japanese stocks.

Editor/Lambor