Investors Bullish on Global Economy: Soft Landing Ahead?
Investors are increasingly optimistic about the global economy’s prospects for a soft landing, according to Bank of America’s July Global Fund Manager Survey. The survey, released on Wednesday, revealed that 68% of respondents believe a soft landing is the most likely outcome for the global economy in the next 12 months. This marks the highest percentage of respondents supporting this outcome since January 2024 and ties for the second-highest reading in the past year.
The shift towards a soft landing scenario is reflected in how fund managers are assessing market risks. For the first time in six months, inflation was not listed as the top risk by respondents, with geopolitical conflict taking the lead this time.
The survey, conducted between July 5 and July 11, coincided with a positive reading on the Consumer Price Index (CPI) for June. This unexpected inflation data, released on the last day of the survey, has contributed to the growing confidence in the global economy’s trajectory.
Market sentiment has also been buoyed by expectations of Federal Reserve interest rate cuts. In fact, markets have priced in a 100% chance of a rate cut by the end of the Fed’s September meeting. This sentiment has fueled a broad stock market rally, with investors shifting towards interest-rate-sensitive sectors like Real Estate and Industrials.
In the past five trading sessions, the equal-weight S&P 500 has outperformed the traditional market cap-weighted index. Real Estate and Industrials have been the top performers, while Technology and Communication Services have seen negative returns.
The Russell 2000, a small-cap index, has surged more than 11% in the past five trading days, outperforming the S&P 500 by nearly 10 percentage points. This significant rally in small-cap stocks indicates a notable shift in investor sentiment towards more risk-on assets.
Overall, the recent market dynamics suggest a growing confidence in the US economy’s resilience and the potential for a soft landing scenario. With investors eyeing further rate cuts from the Fed and rotating into sectors poised to benefit from lower interest rates, the market outlook appears positive in the near term.
As market conditions continue to evolve, staying informed and monitoring key economic indicators will be crucial for investors navigating the shifting landscape. The current optimism surrounding a soft landing scenario underscores the importance of staying attuned to market developments and adjusting investment strategies accordingly.