Asia FX weakens slightly, rupee recovers from record low as RBI holds rates
Investing.com - Investor sentiment is now at its most bullish since February, fueled by hopes for increased corporate profits and surging risk appetite, according to BofA.
Citing its survey of global fund managers, BofA said the amount of "overweight" positions has yet to become "extreme," while bond market volatility has remained low.
"Greed [is] always much harder to reverse than fear," the brokerage said, predicting that investors are more likely to stick to "hedging and rotation" this summer rather than "big shorts and retreat."
However, the analysts flagged that sentiment could be getting "toppy," or excessively optimistic.
The benchmark S&P 500 index has risen by more than 6% so far this year, rebounding from a swoon triggered in early April by U.S. President Donald Trump’s "Liberation Day" tariff announcement. The prospect of punishing U.S. levies on a host of trading partners sparked a rout in stock and bond markets, although the ructions were mostly stemmed after Trump decided to delay the implementation of his so-called "reciprocal" duties.
Economists have warned that the trade taxes could fuel an upward drive in inflation and weigh on broader growth. But recent negotiations and further pauses have helped to bolster market hopes that the tariffs may ultimately not be as aggressive as initially feared, some analysts have suggested.
The BofA survey found that 59% of respondents believe a recession is now unlikely, up from a net 42% in April.
Still, some risks remain, with Trump moving this month to issue a string of letters to trading partners warning of elevated tariffs set to take effect in early August. The trajectory of Federal Reserve interest rate cuts is also relatively unclear, while Trump’s frequent attacks on Chair Jerome Powell has exacerbated some worries over the central bank’s independence.
The trade war is the biggest "tail risk," or the possibility that an asset delivers far above or below its past average performance, the BofA survey showed. Meanwhile, just 11% of respondents expect the Fed to cut rates at its next meeting this month, although 81% see one or two reductions by the end of 2025.