Investor sentiment hasn't been this bullish since Feb.: BofA

00:00 Speaker A

Market sentiment is the most bullish it’s been since February, with investors increasingly pricing out the risk of a recession. That’s according to Bank of America’s latest fund manager survey. What’s behind that bet? Here to break it down, markets reporter Josh Shafer. We watch this survey closely. It has lots of good nuggets and tidbits in there. Yeah. So, what, how is this being reflected?

00:24 Josh Shafer

Yeah, yeah, agree. So, I mean, one of my favorite charts, as we do, look at this sort of every month, looks at the investors expecting a soft landing, a hard landing, or a no landing for the global economy in the next 12 months. So, soft landing is sort of that ideal where inflation falls to around the Fed’s 2% target. We don’t get a recession. Ideal outcome, right? Hard landing would probably include a recession. No landing is maybe some sort of stagflation scenario where inflation doesn’t quite come down but growth picks up. And what we saw in this month’s survey, which was rather interesting, no landing picked up to about 21% of survey respondents highlighting that. Soft landing sits at 65%, so soft landing on your screen right now is in purple. Soft landing remains sort of the base case, right? But the important thing here, I think, is that hard landing, that light blue, light green line, the little top, the little small one at the top now is continuing to shrink, right? And so, I think that’s really what you’ve seen over the past two months in this market when we talk about how economic data is relating to the market rally. It’s just fading risk of recession. We were talking a lot about it in April, some about it in May. Economists I speak with now aren’t really talking about it at all, right? And so, I think that’s been kind of the macro shift that we’ve seen that’s sort of backed this rally. Now, I would note the number one risk, guess what the number one risk is that investors see.

02:19 Speaker A

Tell me.

02:20 Josh Shafer

It’s trade policy, right? And so, it’s still trade policy and it’s still recession. And so, I guess that sort of tells me that a, of course, that’s the number one risk right now, right? But b, also, it’s not something that traders have maybe fully discounted, maybe something people are starting to

02:37 Speaker A

Well, they’re not really reacting to it, even if they say it’s the biggest risk. They’re not pricing it in as a big risk.

02:47 Josh Shafer

No. I mean, you have the NASDAQ, I believe trading at a record high right now, right?

02:51 Speaker A

Yeah, the S&P touched one today, too.

02:54 Josh Shafer

And it right. So, you’re still sitting close to record. So, that’s definitely not it’s a risk, but it’s not something that seems to be holding this market back right now. And I think what you’re just continuing to see people flow into the market, right? I mean, sentiment is at its highest level since February, but Michael Hartnett pointed out within that note, Bank of America strategist, it’s not at the level that we saw back in November, which is kind of interesting, in the post-Trump excitement.

03:19 Speaker A

Even though Right, even though stocks are higher.

03:22 Josh Shafer

Stocks are higher, but sentiment has not come all the way back, which if you talk to some strategists, our friend Ryan Dietrich was pointing this out on X today, does that mean the rally has more room to run, has more people want to join? I mean, I anyone’s guess, right? But it is an argument that you could hear someone that’s more bullish sort of make is not everyone is in this party yet.

03:51 Speaker A

Um what about what is leading, and right, we, you know, the market seemed to be broadening out. The rally seemed to be broadening out, but now it seems to be narrowing again.

04:04 Josh Shafer

Yeah, we were talking a lot about this over the past 24 hours, right? It’s sort of like a tech and everyone else trade. I’m Kevin Gordon over at Charles Schwab was pointing out. I think there’s over 400 members of the S&P 500 that are currently down today, which means that essentially less than 20% of the index is up. I mean, if we look at just simply the sector action, it’s just tech. That is the only thing that is up today. Tech is leading, and it’s almost holding the S&P in positive territory, depending on what moment you look at it. And so, it’s definitely become a lot more of a a narrow rally, at least for now. The question is, does what does that actually mean moving forward, right? You could again, you hear both arguments from that. It’s oh no, it’s just tech leading. Or maybe it’s just tech leading, and that’s a good thing because those are strong companies. Yeah.

05:03 Speaker A

That’s enough. We’ve seen it work so far.

05:05 Josh Shafer

Yeah, it’s worked for two years, right? To some extent, so. Yeah.