Investor Optimism at More Than 4-Year High, BofA Survey Says

Investor sentiment has reached a more than four-year high, according to a recent survey by Bank of America Corp. The survey, conducted between Oct. 4 and Oct. 10, canvassed 195 participants with $503 billion in assets and revealed a significant surge in optimism, driven by a strong US economy, China stimulus, and rate cuts.


Allocations to stocks surged, with equity allocations nearly tripling from last month to a net 31% overweight. This indicates a significant shift in investor preferences towards equities. Bond allocations, on the other hand, saw a record swing to a net 15% underweight, reflecting a decrease in investor interest in fixed-income securities. Cash levels in global portfolios fell to 3.9% in October from 4.2% last month, suggesting that investors are increasingly confident in deploying their capital.


The optimism was reflected in a big rotation among survey respondents into emerging market, discretionary, and industrials stocks, and out of defensive sectors such as staples and utilities. The biggest winners from China stimulus are emerging-market stocks and commodities, while the biggest losers are government bonds and Japanese equities.

Investors expect the Federal Reserve to cut rates by another 160 basis points on average over the next 12 months, further boosting sentiment. Additionally, about a third of investors are set to increase hedging pre-US election, with conviction that a "sweep" would trigger a surge in bond yields and the US dollar while hitting the S&P 500.


The survey also highlighted the biggest tail risks, which include geopolitical conflict (33%), accelerating inflation (26%), US recession (19%), US election "sweep" (14%), and systemic credit event (8%). Despite these risks, investor optimism remains high, suggesting a strong belief in the global economic outlook.

In conclusion, the Bank of America survey indicates a significant surge in investor optimism, driven by a strong US economy, China stimulus, and rate cuts. This optimism is reflected in a significant shift in investor allocations towards equities and away from bonds and cash. While there are still tail risks to consider, investors appear confident in the global economic outlook.