Fund Managers No Longer Forecast Recession, Survey Shows
In a significant shift in sentiment, fund managers are no longer predicting a U.S. recession, according to a closely watched survey. This is the first time in a year and a half that this group of experts has projected such optimism. The survey, conducted in February and involving 249 panelists overseeing $656 billion in assets, also revealed that expectations of a global recession in the next 12 months have turned negative for the first time since April 2022.
While the survey participants remain cautious about the strength of the economy over the next year, the level of optimism has increased. The percentage of fund managers expecting a stronger economy stands at -25%, the highest level recorded since February 2022. The majority of panelists still believe a soft landing is the most likely outcome for the global economy, with only 11% anticipating a hard landing.
With this newfound optimism, fund managers have reduced their cash levels from 4.8% in January to 4.2% in February. In terms of crowded trades, the survey shows that the “long Magnificent Seven” trade is currently the most crowded, with 61% of respondents indicating this. In comparison, the most crowded trade in October 2022 was long positions in the U.S. dollar, which garnered 64% of the vote. The second most crowded trade currently is short positions in Chinese equities, cited by 25% of participants.
When it comes to potential credit risks, U.S. commercial real estate is seen as the top contender for a systemic credit event. In terms of portfolio allocations, the survey highlights a rotation into telecom, stocks in general, tech, and U.S. investments, while emerging markets, real estate investment trusts, staples, and cash saw reductions.
Looking at specific sectors, investors remain bullish on technology and healthcare, as well as U.S. stocks and telecom. Conversely, the sentiment is bearish on U.K. investments, real estate investment trusts, utilities, energy, and banks.
As the S&P 500 approaches another record high, having gained 21% in the last 52 weeks, optimism is growing about the U.S. economy. This is reflected in the 31 basis point increase in the yield on the 10-year Treasury since the start of the year.
In summary, fund managers are shedding their recession concerns and embracing a more positive outlook for both the U.S. and global economies. While risks and caution remain, there is a sense of growing optimism among these experts.
Analyst comment
Positive news. The market is expected to see increased optimism and a reduced likelihood of a recession in both the US and global economies. Fund managers are adjusting their portfolios accordingly, with a rotation into telecom, tech, and US investments and a reduction in cash and certain sectors like real estate investment trusts and utilities. Overall, investors are bullish on technology, healthcare, and US stocks. The S&P 500 is approaching a record high, reflecting growing optimism about the US economy.
