Investor sentiment continues to be bullish, with nearly 9 out of 10 managers expecting global profits to improve over the next 12 months, according to Bank of America's January Global Fund Manager Survey.
Of the 194 fund managers overseeing a total of $561 billion in assets that Bank of America surveyed in January, 73% said the global economy is in an early cycle phase, the highest level since January 2010. Meanwhile, only 9% said they believe the economy is in a recession.
Expectations for global growth among January survey respondents rose by 1 percentage point to net 93%, the third highest growth expectations among fund managers ever, after March 2002 and November 2020. Meanwhile, 59% of respondents expect the global economy to get "a lot stronger," up 3 percentage points from last month.
A record net 92% of investors expect higher inflation in the next 12 months, while a record net 83% of investors said they're expecting a steeper yield curve in 2021, higher than the 2008 Lehman Brothers bankruptcy, the Federal Reserve "taper tantrum" in 2013 and the U.S. election in 2016.
Cash levels among surveyed money managers fell to 3.9% from 4%, making investors underweight cash for the first time since May 2013.
Allocation to equities rose 2 percentage points to net 53% overweight, the highest level since Jan. 2018. Meanwhile, fund managers' allocation to fixed income decreased 3 percentage points to a net 59% underweight, the lowest since March 2018.
A record net 19% of survey respondents are currently taking higher than normal risk levels, up 6 percentage points from the previous month.
COVID-19 vaccine rollout tops the list of biggest tail risks, at 30%, followed by a "tantrum" in the bond market (29%) and a Wall Street bubble (18%).
When asked what they think the biggest focus of President Joe Biden will be during his first 100 days in office, 26% of fund managers said health care, while 25% believed it to be infrastructure and 19% expected inequality to top his list of priorities.