The first survey of 2025 to fund managers carried out every month by Bank of America comes with fixed income as the main protagonist: for the first time since September 2022, the managers surveyed believe, on average, that the profitability to maturity of the bonds will will increase in the next 12 months, something that, if it occurs, will leave investors with price losses in this period. It is a significant turn, which leads managers to have a perception of fixed income that was not so negative since 2022which was the worst year in history for fixed income. Behind this paradigm shift lies the fact that more and more analysts and experts are raising the possibility that inflation will cause scares again and rebound in the coming months.
While it is true that managers continue to think, on average, that inflation will continue to moderate its growth in the next 12 months, expectations that this will happen are already the lowest that have been seen since March 2022. Furthermore, the possibility that inflation picks up and force the Federal Reserve to raise rates has become the main danger that exists at this time, in the opinion of the managers surveyed. Until now, the possibility of a global recession due to the trade war was the great fear of managers, but it has fallen to second position on this occasion.
This increase in managers’ fear that a new rise in inflation could occur this year fits with the change in positioning that they have confirmed in their portfolios. The combination of higher inflation, which forces the Fed to not be able to lower rates too much, or even to have to raise them, is gaining prominence as one of the great forces to be taken into account this year by investors. Hence, the managers recognize that their exposure to bonds is now the lowest they have been since October 2022since they are protecting themselves from those expected losses that they now maintain for fixed income.
The fear of seeing stronger inflation is based on the good prospects for the world economy in the next 12 months, with the US economy as the main protagonist. The survey shows how the expectation that there will be a hard landing of the economy is already the lowest that has been seen since that question was included at the end of the pandemic, and the probability that they see that there will be “no landing” of the economy, neither hard nor soft, is the highest it has been to date.
Against this background macroeconomic context, it is logical that the prospects of seeing interest rate cuts by the Fed are low at this time. In the opinion of the managers surveyed, it is most likely that the US central bank will cut rates twice in 2025. This is believed by 39% of the participants in the survey, compared to 27% who favor a single cut, or the 16% who believe there will be no rate cuts in the United States throughout the year.
Rotation towards the European stock market at the expense of the American one
The positioning of managers in equities has brought surprising results in this survey: managers have rotated aggressively towards the European stock market, at the cost of reducing exposure to the US stock market, and they have done so even before hearing the first official speech of Donald Trump as president of the United States. On average, the 182 participants in the survey carried out between January 10 and 16 have strongly exited US equities and bought European ones. So much so that the entry in the latter is the second most aggressive in a single month that has been seen in the entire history of the survey.
Thus, it is confirmed that, before Trump recognized it in his speech, the market was already assessing that the new president’s protectionist measures would not be as aggressive as was being discounted. Leaving aside the North American stock market to buy the European one would not make much sense if harsh measures are being prepared against the euro zone by the new administration, and even more so at a time when the US economy is showing more strength and dynamism than the European one. facing 2025.
The main catalysts
Being the first survey of the year prepared by the bank, they have included two questions for the year 2025: what factors can be the main bullish catalysts for investors in the year, and which can be the most bearish. The drivers with the most potential to give an upward push to the market are an acceleration in China’s growthfor 38% of respondents, followed by Fed rate cuts, an option noted by 17% of participants. Behind them are the increase in productivity that can be generated by the development of artificial intelligence, a peace agreement in Ukraine, tax cuts in the United States and fiscal stimuli in the euro zone.
On the contrary, The bearish catalysts with the most potential to harm the market are, first of all, a disorderly sale of bondsfor 36% of those surveyed; an increase in interest rates from the Fed, for 31%; a global trade war, for 30%, and a disorderly rise in the US dollar, the latter option being pointed out by 2% of managers.
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