Sentiment and Market Outlook

Nothing changes sentiment like price, as the old Wall Street saying goes.

Market Rally and Record Territory

A remarkable rally off the October lows has brought the S&P 500 index (SPX) within just 1% of its record close of 4796.56 set on January 2, 2022. The Dow Jones Industrial Average (DJIA) has also entered record territory this month.

Strong Sentiment Among Global Fund Managers

According to Bank of America's latest survey, sentiment among global fund managers is currently the strongest since January 2022. This positive sentiment marks a notable rise from earlier this year around the collapse of Silicon Valley Bank. However, the gauge still stands at 3.4, which is towards the bearish end of the 10-point scale.

Drop in Cash Levels

The survey also revealed that cash levels, a component of BofA's sentiment measure, have dropped to a two-year low of 4.5% from 4.7% in November and 5.3% in October. This signals a significant decrease and represents the largest two-month drop since February.

Optimistic Outlook for "Goldilocks '24"

Analysts led by Michael Hartnett expressed optimism regarding a "Goldilocks '24" scenario in the new year. In a Tuesday note, they highlighted that policy, rather than positioning, will now be the main driver of asset prices.

Federal Reserve and Interest Rates

According to a recent survey by Bank of America (BofA), a majority of managers (91%) believe that interest rate hikes are over, while 89% expect rates to fall. As the Federal Reserve cuts rates in the first half of 2024, bonds and technology stocks are expected to be the biggest winners.

Bull & Bear Indicator

BofA's Bull & Bear Indicator, a contrarian gauge, remained at 4.5 in December, indicating a "neutral" reading according to analysts.

Economic Outlook

The survey revealed that a net 50% of investors expected weaker global growth. However, more than 70% were optimistic about a "soft" or "no landing" economic scenario. Furthermore, optimism regarding earnings per share was the highest it has been since February 2022.

Potential Risks

While the overall sentiment was positive, there are potential risks that could hinder economic progress. According to the survey, the biggest concern among investors (32%) is the possibility of a "hard landing" for the economy. This is followed by concerns about high inflation that may lead to elevated interest rates (27%), and increased geopolitical turmoil (17%).

Survey Details

The survey was conducted between December 8th and December 14th, with a total of 254 panelists participating. These panelists manage a combined $691 billion in assets under management. Out of the respondents, 219 participants with $611 billion in assets under management provided answers to global questions, while 140 participants with $310 billion in assets under management responded specifically to regional questions.