Equity Market Resilience and the Soft-Landing Narrative: Insights from BofA's October 2025 Global FMS

The October 2025 Bank of America (BofA) Global Fund Manager Survey (FMS) paints a cautiously optimistic picture of equity market resilience, with investors increasingly aligning their portfolios around the narrative of a global soft landing. According to a Portfolio Adviser report, 76% of respondents expect the U.S. economy to achieve a soft landing, while 14% anticipate sustained growth without a recession ("no landing"), and only 8% foresee a hard landing. This optimism is reflected in a dramatic reallocation of assets: investors have boosted equity allocations to their highest level in over four years while reducing bond holdings at a record pace, as the same Portfolio Adviser report notes. The shift underscores a growing conviction that central banks' rate-cut cycles and fiscal stimulus-particularly in China-will stabilize growth without triggering a downturn.

The Soft-Landing Narrative: Drivers and Skepticism

The soft-landing narrative has gained traction amid easing inflationary pressures, resilient consumer spending, and accommodative monetary policy. BofA analysts note that the U.S. labor market and corporate earnings have provided a "floor" for growth, reinforcing the case for a soft landing, according to Financial Modeling Prep. Additionally, global rate-cut expectations, including the Federal Reserve's projected two cuts in 2025, have spurred risk-on sentiment, BofA Global Research says. However, the narrative is not without cracks. By November 2024, confidence in a soft landing had dipped to 55%, as geopolitical tensions and China's weak growth outlook introduced uncertainty, Fi Desk reported. Fund managers now cite a U.S. recession (40%), inflation (18%), and trade wars (19%) as top tail risks, Macenews reports.

Equity Allocations and Sector Rotation

Investors are positioning portfolios to capitalize on the soft-landing scenario. The BofA FMS reveals a net 39% overweight in equities, with emerging markets (EM) and industrials attracting significant inflows, according to the Portfolio Adviser report. China's stimulus package, in particular, has driven rotation into EM assets, while global rate cuts have bolstered industrial sectors reliant on low borrowing costs. Conversely, bonds remain at their most underweight level since November 2022, as investors bet on inflation moderation-a trend also highlighted in the Portfolio Adviser coverage.

Sectoral preferences highlight a divergence in strategies. While the "Long Magnificent 7" trade remains crowded, with tech stocks dominating risk-on flows, short positions in energy have reached a 20-year high, reflecting concerns over oversupply and weak demand growth, the HedgeFundTips summary reports. Defensive allocations to healthcare and Japanese equities also stand out, suggesting a balance between growth and stability, the HedgeFundTips summary adds.

Risks and Contrarian Views

Despite the optimism, the FMS underscores lingering vulnerabilities. A 61% majority of fund managers anticipate a contested U.S. election outcome, signaling political uncertainty as a key headwind, the HedgeFundTips summary noted. Meanwhile, cash levels remain at 4.4%, a level BofA historically associates with "greed and fear" dynamics, where investors balance risk-taking with caution, as highlighted in the HedgeFundTips coverage. The survey also notes a shift toward defensive strategies, with reduced exposure to commodities and increased cash holdings, hinting at a potential pullback if macroeconomic data weakens, a trend Macenews also observes.

Strategic Implications for Investors

The soft-landing narrative offers opportunities for investors willing to navigate sectoral imbalances. BofA recommends a dual approach: high-conviction stock-picking in resilient sectors (e.g., technology, healthcare) paired with broad index exposure to capture market-wide gains, a stance BofA Global Research outlines. However, hedging against tail risks-such as trade wars or a U.S. recession-remains critical. Positioning in small-cap equities and high-yield bonds, which have shown strength in the FMS, could further diversify portfolios, as Fi Desk observed.

In conclusion, BofA's October 2025 FMS reflects a market at a crossroads: buoyed by soft-landing hopes but wary of macroeconomic fragilities. As investors navigate this duality, the interplay between policy-driven optimism and geopolitical risks will likely define equity market resilience in the months ahead.