The world's biggest money managers are plowing cash into the U.S. stock market as American companies continue to outperform their global peers and investors see more record highs over the second half of the year.
Bank of America's benchmark survey of global fund managers, who collectively control around $721 billion in assets, suggests the highest level of bullishness in more than three and a half years, supported by likely Federal Reserve interest rate cuts, a resilient U.S. economy and fading inflation risks.
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That combination, in fact, is further reducing cash balances at the world's biggest investment funds, which now sit at the lowest levels in three years, with the bulk of the reallocation is finding its way into U.S. stocks.
"U.S. stocks are seen as the biggest beneficiary of a reallocation of money market funds per 32% of FMS investors, followed by government bonds (25%), global equities (19%), corporate bonds (12%), and gold/commodities (4%)," the survey noted.
The S&P 500 has printed 30 record closes this year, taking its 2024 advance to around 14.75%, the best start to any U.S. presidential election year in history.
Charlie Bilello, chief market strategist at Creative Planning, also notes that U.S. stocks are outperforming their global peers at the highest rate on record. Total returns for the S&P 500 are well above the historical average compared with the MSCI World ex-U.S. benchmark.
Stocks: It's not all about tech
However, with only four stocks – Nvidia (NVDA) , Apple (AAPL) , Microsoft (MSFT) and Alphabet (GOOGL) – driving around two-thirds of the market's gains since the early April lows, investors are also growing increasingly concerned about the lack of breadth in performance over the first half.
More acutely, Nvidia shares alone, which have added more than $1 trillion in market value this year, are responsible for around 34% of the S&P 500's total advance.
The BofA survey, in fact, noted that bets on the so-called Magnificent 7 megacaps remains the "most crowded trade" in the market, suggesting the risk of a near-term correction.
Related: Analysts revisit S&P 500 price targets after record run
Expected gains over the coming months, however, don't rely solely on an outsized performance from megacap tech stocks. Allocations to the sector have fallen to a net overweight of 20%, based on survey replies, the lowest in nine months.
"Tech allocation has declined from a recent high of net 36% overweight in February 2024 and has fallen below the long-term average of net 22% overweight," the report said.
Improving corporate earnings, tied to a healthy economy, are likely to provide the bulk of the market's heavy lifting in the second half, with a net 19% of respondents seeing profit growth improving over the next 12 months.
LSEG data suggest collective second-quarter S&P 500 profits are set to rise around 10.7% from a year earlier to a share-weighted $495.7 billion, firmly ahead of the 8% growth recorded over the first three months of the year.
Soft landing for the economy seen likely
Full-year earnings growth is also forecast at 10.7%, according to LSEG estimates, a pace investors see expanding to 14.2% in 2025.
With respect to Fed rate policy, around 80% of respondents see at least two or more rate cuts over the next 12 months, the first cut in September, with expectations for slower inflation rising for the second consecutive month.
Most fund managers are also betting the the U.S. economy will avoid recession, with only 5% worried about the prospects for a so-called hard landing: elevated inflation and negative near-term growth.
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The Atlanta Fed's GDPNow forecasting tool, meanwhile, points to a current-quarter growth rate of 3.1%, more than double the 1.3% advance over the first three months of the year.
The CME Group's FedWatch now suggests a 62% chance of a quarter-point rate cut in September, with similar odds for a follow-on move in December.
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