Managers rule out recession for the first time in 2 years and take risk again with the stock market, technology and growth

Managers rule out recession for the first time in 2 years and take risk again with the stock market, technology and growth


The survey of fund managers prepared every month by Bank of America has continued in February the trend that began to be seen during the first month The exercise. Already in January, an improvement was seen by managers regarding the macroeconomic outlook, but lThe results on this occasion have been especially optimistic in this sense, and have led respondents to return to the stock market, in general, for the first time in two years, and to favor cyclical sectors, considered riskier, such as technology or the US stock market, increasing the exposure of this asset rates to levels not seen since before the Fed and ECB rate hikes began.

The more risk-oriented positioning seen in this survey has a fundamental basis: recession has disappeared from managers’ base case for the first time since April 2022, and the majority opinion of those surveyed is that in the next 12 months it will be avoided. This does not mean that the economy will improve next year, since the majority opinion continues to be that the slowdown in growth will continue to occur in 12 months, but a crash economic in this period, if not a soft landing of the economy, one of the best possible scenarios after the aggressive rate hike that occurred last year in the United States and the euro zone.

Something has changed in the mood of the managers in just a month. The possibility of seeing a “hard landing” for the economy was the main danger highlighted in January, and in just 30 days it has lost four positions on the list of greatest threats to the market. A new rebound in inflation is now in first position, followed by the geopolitical situation in second, and the possibility of a systemic credit event in third position.

Although the inflationary danger is a real risk for managers, most do not maintain a new rebound in prices as a base scenario, with a net 69% of managers expecting inflation to be lower than now within 12 months. This is an example that The clouds are dissipating on the managers’ horizons.

Respondents’ macro outlook has improved so much that it is also spilling over into their corporate profit growth estimates: now only a net 5% of respondents believe corporate profits will decline in the next 12 months, the best reading since January 2022, and a percentage that contrasts with the pessimism that was seen in the middle of last year, when close to a net 80% of managers expected to see a deterioration in business profit within 12 months.

They rotate their wallet towards the stock market

The greater optimism of managers regarding the macroeconomic situation has been accompanied by a rotation of their portfolios towards riskier assets. On average, the 209 managers surveyed, who manage $568 billion in assets between them, have chosen to increase exposure to the stock market to take advantage of this improvement in the macroeconomic outlook that they now perceive, to the point of increase the weight of equities in their portfolios to levels not seen in two yearsin February 2022. Now, net 21% of managers acknowledge overweighting the stock market.

In fact, during the last month there has only been one category of assets that has increased its weight more in the portfolios of those surveyed than equities, and this has been the telecommunications sector, with an increase of 15 percentage points in the managers’ presentation. The technology It has also been one of the managers’ favorite asset classes in February, with an increase of 10 percentage points in the portfolio, which now leaves them with the greatest weight seen since August 2020, while US assets and those in the cyclical consumer sector occupy fourth and fifth place in the ranking of assets that have gained the most exposure in the portfolios.

February has also left interesting readings regarding the managers’ preference between ‘growth’ style assets (growth, assets that tend to perform well in expansionary moments of the economic cycle), versus to ‘value’ (value, a style that tends to perform better when there is not excessive enthusiasm about the economic situation). For the first time since May 2020, managers now believe that the ‘growth’ style will perform better than the ‘value’, another significant sign of their change in perception over the last month.

The rotation towards riskier assets has been done at the expense of four types of assets, mainly: those from emerging markets, in first place, falling to the largest underweight since November 2022, followed by REITs (funds that invest in real estate assets ), basic consumption and liquidity. Fixed income has also gained some weight in the last month, but nothing compared to the trend that has been seen in the recent past. It remains the most overweight asset in the portfolios when compared to historical positioning of managers, and has a net overweight of 6% at this time for respondents.

Optimism also among European managers

Optimism from a macro point of view also reigns in the survey for European managers. Around 85% believe that the global economy will avoid the blow of a recession. The view that there will be no landing increases strongly from 19% to 7%, with 65% contemplating a soft landing. The question of how Western economies would respond to the largest rate increase in forty years reigned in the financial markets during the second part of 2023. At this point, almost no investor thinks about a choke, beyond the European economy.

The good feelings are supported by a US perspective of a “robust economy”, with fewer and fewer investors thinking about a slowdown. Optimism is even beginning to permeate the European economy. Although there is a large majority (62%) who believe that the economy is “weak”, it was down from 82% in January, and the prospect of a fall into recession has plummeted from 53% last month to 16%.

The managers of Old Europe are also positive on the stock market, as is the case with their US comrades. 78% of respondents see European stocks rising in the next twelve months, the highest level in two years, but they introduce an important nuance. Faced with the euphoria of the American stock market, they warn that there will be weakness in the European market in the short term, after the rally started in October.

The arguments used to trust European equities include an improvement in company profits and the prospect of rate cuts by the ECB as the “main driver of the market.” 87% of respondents expect some rate cut over the next twelve months. By type of assets, the preference of respondents points to European cyclical values ​​compared to defensive ones due to the improvement in financial conditions, in response to the foreseeable lower rates. The favorite sector of those surveyed is insurance, ahead of technology and healthcare.

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