The last survey of the year to fund managers launched by Bank of America has reflected an increase in optimism so enormous, that it can be worrying, due to the consequences it has had in the past when these levels have been reached. The arrival of Donald Trump to the White House with expansive and deregulatory policies for the US economy, combined with an accommodative monetary policy by the Federal Reserve, has led investors to reduce liquidity exposure to unprecedented lows. In the past, when similar levels have been reached, there have been episodes of sharp falls in the world stock market.as happened in 2002 and 2011.
Fund managers face the year 2025 with a very positive feeling on the macroeconomic front. The recovery continues from strength to strength, after a surprisingly good 2024 in indicators such as economic growth or unemployment, and the slowdown has been avoided without triggering inflation along the way. Now all the pieces fit together for the new year: the new US president, Donald Trump, promises measures to support activity, such as tax cuts and deregulation, and the Federal Reserve will continue to lower interest rates, although at a calm pace .
Thus, business profits will continue to rise, if the expectations of managers are met, who, in this survey, reach the highest confidence in improving company results that has been seen in 3 years. The managers surveyed rule out with great certainty that there is going to be a hard landing in the global economy, and They maintain their commitment to a soft landing, with no recession on the horizon. Only 6% of those surveyed believe that there will be a hard landing for the economy, the lowest percentage in this sense in the last six months.
An excessively optimistic positioning
With this basic economic and political context, managers have acted accordingly and have launched in December towards assets that will benefit from the promise of growth, at the cost of reducing, above all, exposure to liquidity, the main protection they use. investors in their portfolios. The US stock market is the managers’ big bet for this stage positive on the macro front, to the point that the increase it has had in the portfolios has been the strongest in more than a year, and places it at the highest overweight levels that have ever been seen, since it began The survey was carried out in 2001.
At the same time, the reduction in the weight of liquidity in portfolios has been aggressive and historical levels of low weighting of this type of asset in portfolios have already been reached, with a net 14% of managers now underweighting liquidity. This milestone is worrying, in the opinion of Bank of America, and the analysts preparing the survey warn that “the previous lows seen in liquidity exposure coincided with large ceilings in risk assets,” they explain.
It was in the years 2002 and 2011, and reviewing stock market history, they coincided with the beginning of very negative stages for the world stock market: between January and September 2002 the MSCI World plummeted by 31.25%, suffering the impact of the outbreak of the bubble dotcomand between February and October 2011, at the dawn of the European debt crisis, the world stock index sank more than 21%. This Bank of America ad is reminiscent of those experts who insist, as the first Baron Rothschild said, that “you have to buy with the sound of cannons.” [en los inicios de una guerra]and sell with the sound of trumpets [cuando se consigue la victoria]”.
Outside of the US stock market, during the month of December, managers They have launched an intense purchase of the banking sector, and also the world stock market and global equities. In addition to liquidity, the largest exposure cuts that have been recorded have been in the euro zone stock market and those of emerging economies.
Dangers and opportunities for next year
The managers’ central scenario for 2025 is optimistic, and although they have launched themselves into risk assets in December and have fled from the protection offered by liquidity, they still have an eye on possible scenarios that could derail the economy. and to the markets.
Looking ahead to 2025, Bank of America includes in its survey questions about which will be the bullish catalysts for the markets in 2025, and which will be the bearish ones, in addition to the usual question about the main risks that investors face at this time.
On the positive front, the main bullish catalyst for the markets is “an acceleration in China’s growth”the favorite option for 40% of those surveyed. Behind, in second place, appears “the increase in productivity due to AI”, with 13% of managers pointing in this direction, and in third place they maintain “that there be a peace agreement between the United States and Ukraine and Russia”.
On the contrary, the main negative catalysts for next year are, first of all, the occurrence of “a global trade war”, an option indicated by 39% of those surveyed. Behind them, the greatest danger appears to be “that there will be a disorderly increase in bond yields” and, thirdly, that there will be “rate increases by the Fed.”
Regarding the main latent dangers that threaten the entire market, the first option is also that “the trade war generates a global recession”, an option that, with 37% of those surveyed highlighting it, ties in first place with “a rise in inflation that forces the Fed to raise rates.” Behind it is “a geopolitical conflict”, “a systemic credit event”, “a US financing crisis” and, sixthly, “the breakup of the euro zone”, a danger that rears its head again among the more serious than managers fear.
LinkedinBeloud
#Excessive #optimism #managers #enthusiasm #stock #market #reaches #level #ended #badly
