What do institutional investors expect? BofA FMS investor sentiment hits its highest level since February

The latest Bank of America Global Fund Manager Survey (BofA FMS) suggests institutional investors remain increasingly optimistic about technology stocks and the broader market outlook. At the same time, respondents see little chance of further Federal Reserve tightening before the U.S. midterm elections. The survey also indicates that a sustained rebound in oil prices back above $90 per barrel would come as a significant negative surprise for investors.

Key summary from the survey

• Global investor sentiment climbed to its highest level since February. Fund managers have become more optimistic about the economic outlook, AI-related capital spending, and the prospect of a more accommodative Federal Reserve.
• Cash allocations fell to 3.6% from 4.1% in June. According to Bank of America's methodology, such a low cash balance triggers a contrarian sell signal, suggesting investor optimism may have become excessive and that there is less room for additional risk-taking.
• A record 54% of respondents expect a "no landing" scenario for the global economy, meaning economic growth remains resilient without a meaningful slowdown. Only 2% anticipate a hard landing.
• Fund managers increased their allocation to U.S. equities to the highest overweight level since December 2024, reflecting growing confidence that U.S. stocks will continue to outperform global markets.
• Long positions in global semiconductor stocks were once again identified as the world's most crowded trade, cited by 82% of respondents for the third consecutive month. Although some investors trimmed technology exposure in July, none reported holding net short positions in the sector.
• A majority (61%) believe hyperscalers will not reduce capital expenditures this year, compared with 28% expecting spending cuts. This supports the view that investment in AI infrastructure, data centers, and advanced semiconductors is likely to remain elevated.
• The risk of an AI bubble was identified as the largest tail risk facing financial markets, with 45% of respondents highlighting it as their primary concern. This suggests investors remain highly optimistic about AI while simultaneously acknowledging growing valuation risks.
• Around 83% of respondents do not expect the Federal Reserve to raise interest rates before the U.S. midterm elections, reinforcing expectations for a more supportive monetary environment for risk assets.
• Fund managers also lowered their year-end 2026 oil price forecast to $71 per barrel, down from $86 in June. This indicates investors expect weaker inflationary pressure from energy markets than they did just one month ago.

US100 chart (H1)

Looking at the US100 since June 2026, every test of the upper boundary of the prevailing trend channel has been followed by a strong rejection and a meaningful downside move. If history repeats itself, another rejection from current levels could increase the probability of a pullback toward the 29,000-point area.

Source: xStation5