- The latest Bank of America survey indicates most fund managers believe the economy has reached 'Peak Boom'.
- Fund managers are currently far less bullish in July compared with June about growth, earnings and inflation.
- The tilt towards cyclicals continues as asset allocated to commodities are at a record high.
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The global economy has reached 'Peak Boom' and fund managers are much less bullish over growth, earnings and inflation compared to earlier in the year, Bank of America's July global fund manager survey shows.
Month on month, 2% fewer respondents to the bank's monthly global fund manager survey believe economic growth and inflation will rise above current predictions. Overall, 74% of fund managers still expect growth and inflation to be "above trend."
"July economic growth expectations are now at net 47%, down from the 91% peak in Mar'21," the bank said. Similarly, profit growth expectations have declined. Just 53% of fund managers expect earnings per share to rise, compared to 89% in March.
The bank spoke to 239 fund managers with a collective $742 billion in assets under management for the global survey.
Earnings season kicked off this week, with several major Wall Street banks publishing earnings over the coming days, and investors are expecting strong performances across the board. JPMorgan led the pack on Tuesday, beating estimates with record-breaking earnings in the second quarter.
Just 22% of fund managers expect inflation to rise in the next 12 months and 70% expect inflationary pressures to be transitory rather than entrenched, in line with the view of the Federal Reserve. This is a small decline from last month, when 72% of surveyed fund managers said inflation would merely be short-term.
Continuing on the theme of Fed policy, 70% of fund managers expect the Fed to signal tapering - an easing in the pace of the central bank's asset purchases - in August or September this year. Key dates to watch are the Fed's conference in Jackson Hole in August and its September policy meeting.
An increasing number of fund managers also expect the Fed to hike interest rates later than previously anticipated. The majority see the second half of 2022 as the most likely timing for any increases, but an increasing percentage of those surveyed said they believe the Fed will hold off until 2023, the survey showed.
Last month, the Fed signaled it could raise rates twice in 2023 after having previously said it expected no increases that year, which sent investors into high-yield assets.
Fund managers increased their exposure to the technology sector last month, but they also rated it the most crowded trade now, followed by ESG-focussed assets and bitcoin.
The survey also showed a continued overall tilt towards cyclical stocks such as industrials and materials that have boomed in recent months as the world economy has recovered further.
"Commodities asset allocation is at the highest ever but it's important to note that cyclicals have fallen drastically as a percentage of the benchmark in the last 15 years." the survey said.
