Lead

A Bank of America (BofA) survey released in May revealed that just 4% of global fund managers expect a hard economic landing, even as they record a historic rise in equity allocations and cut cash positions to 3.9%, the lowest level since February 2024.

Background

The survey, conducted among a broad cross‑section of fund managers, tracks sentiment on macro‑economic risks, asset‑class allocations, and yield expectations. It comes at a time when markets are wrestling with lingering supply‑chain constraints in the Strait of Hormuz, persistent inflation concerns, and shifting expectations for long‑term Treasury yields.

What Happened

The May questionnaire produced several notable findings:

  • Only 4% of respondents believe the global economy will experience a hard landing, indicating broad confidence in continued growth.
  • Equity allocations by global fund managers rose to a record level in May, reflecting a shift toward risk‑on positioning.
  • Cash holdings fell to 3.9% of total assets, down from 4.3% and marking the steepest monthly decline since February 2024.
  • 66% of managers expect the current bottleneck in the Strait of Hormuz to ease within the next few months.
  • When asked about target yields for 30‑year Treasury bonds, 62% aim for a 6% yield, while 20% target a 4% yield.
  • 40% identified a second wave of inflation as the most significant tail risk to their portfolios.

Market & Industry Implications

The near‑universal dismissal of a hard landing suggests fund managers are pricing in resilient growth, which supports the recent surge in equity exposure. The record equity allocation aligns with the decline in cash balances, indicating that managers are redeploying liquidity into stocks rather than holding it as a defensive buffer.

The expectation that the Hormuz bottleneck will clear soon reduces geopolitical supply‑chain risk, potentially easing commodity price pressures that have fed inflation concerns. Nevertheless, 40% of respondents still flag a second inflation wave as the primary tail risk, underscoring that price stability remains a central focus for portfolio construction.

Yield expectations reveal a split view on long‑term interest rates: a majority (62%) target a 6% yield on 30‑year Treasuries, suggesting anticipation of higher inflation‑adjusted rates, while a minority (20%) hold to a more modest 4% target, reflecting divergent outlooks on monetary policy trajectories.

What to Watch

  • Upcoming data on the Strait of Hormuz shipping volumes, which will test the 66% consensus that the bottleneck will resolve in the next few months.
  • U.S. Treasury auction results and Federal Reserve communications that could confirm or challenge the 30‑year yield targets set by fund managers.
  • Inflation reports in the next two quarters, particularly any signs of a second wave that 40% of managers view as a tail risk.
  • Quarter‑end fund flow disclosures, which will indicate whether the record equity allocation and reduced cash holdings persist.