The world’s top investors are becoming more confident that markets won’t be hit by recession in 2024, with an overwhelming majority now backing the likelihood of a “soft landing” — or even “no landing” — for the U.S. economy.
Global fund managers, polled each month by Bank of America, said in January’s survey that the most crowded trade was “long Magnificent Seven” — that means backing further gains for the tech giants Alphabet Inc (NASDAQ:GOOGL), Amazon.com Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), Nvidia Inc (NASDAQ:NVDA) and Tesla Inc (NASDAQ:TSLA).
Despite it being a crowded trade, fund managers believed being long on the Mag7 stocks was still the among the best ways to play this year’s expected rate cuts by the Federal Reserve.
Overweight U.S. Equities
Investors trimmed their global equity portfolios, but were at their highest overweight position on U.S. equities since December 2021, with “mass preference for high quality.”
However, for the first time since June 2021, small caps were preferred to large. Indeed, since late October 2023 to its late December peak, the Russell 2000 index of small cap stocks rose 26%, compared to the S&P 500‘s 16% increase over the same period.
Similarly, the two exchange trade funds that track these two indices had made equivalent gains: the iShares Russell 2000 ETF (NYSE:IWM) was up 26.5% over the same period, while the SPDR S&P 500 (NYSE:SPY) gained 16%.
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Recession Risk Fades
A large majority of the respondents to the BofA survey — 79% — said they expected either a soft landing — where economic activity slows down, but has no major impact on earnings — or, no landing at all — with the economy continuing to grow throughout 2024. Only 17% said they expected a hard landing.
This echoed comments last week from former CME economist Bluford Putnam, who told Benzinga he didn’t expect a hard landing in 2024.
“We’re going to post gross domestic product growth of 2.5%-3% for 2023. I wouldn’t even call that a soft landing — I would say that is either average or slightly above potential GDP growth,” he said.
Key Risk Factors
Of the key drivers for equity markets in…
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