Although economic expectations from global investors have peaked, they remain "bullishly positioned for permanent growth," according to Bank of America's June Global Fund Manager Survey.
Of the 207 fund managers overseeing a total of $645 billion in assets surveyed, 41% of respondents expect the global economy to get "a lot stronger," down 8 percentage points from last month.
A net 75% expect a stronger economy, down 9 percentage points from the previous monthly survey, and a net 67% expect global profits to improve over the next 12 months, down 11 percentage points month-over-month.
A net 64% of respondents said they expect higher inflation in the next 12 months, down 19 percentage points from last month. Meanwhile, a net 59% of fund managers are expecting higher short-term rates, down 4 percentage points from May.
Inflation expectations have peaked, with a net 64% of survey respondents expecting higher inflation in the next 12 months, down 19% month-over-month.
A net 59% of respondents now expect a steeper yield curve, the lowest since August.
Still, a record net 76% of global fund managers expect above-trend growth and above-trend inflation for the global economy over the next 112 months, up 7 percentage points from last month. Meanwhile, 11% of respondents expect above-trend growth and below-trend inflation over the next 12 months, down 8 percentage points month-over-month.
Cash levels among surveyed money managers dropped to 3.9% from 4.1% the month before.
The survey shows that 68% of fund managers don't expect recession until 2024 at the earliest, while 26% think a recession will occur in 2024 and 25% in 2023. Only 2% of survey respondents said they expect a bear market in the next 6 months.
Asset allocation to bonds is at a 3-year low at net -69%, while allocation to stocks is back up to year-to-date highs at net 61% overweight.
Fund managers are now overweight cyclicals, with a net 30% overweight banks, a net 11% overweight energy and a net 23% overweight materials.
Inflation and a "taper tantrum" tie for the biggest potential tail risks for fund managers, at 30%, followed by asset bubbles (18%) and COVID-19 (10%).