In August, investors significantly increased their cash allocations and reduced their overweight positions in stocks, driven by declining expectations for global growth, according to a Bank of America (BofA) survey of fund managers released on Tuesday.
The survey revealed that only 31% of respondents were overweight in stocks in August, a steep drop from 51% in July. Meanwhile, the average cash level rose to 4.3% of assets under management, up from 4.1% the previous month.
BofA attributed this shift to disappointing U.S. payroll data for July and the market volatility triggered by the rebound in the Japanese yen. The S&P 500 has fallen 3.6% so far this month, plummeting 2.7% on the day of the payroll report and another 2% the following session after Japan’s Nikkei share index experienced its biggest single-day drop since 1987.
Market analysts have also pointed to the yen’s rebound and the subsequent unwinding of carry trades, which had been used by investors to amplify their bets, as contributing factors to the sell-off. Despite this, global shares have started to rebound in recent sessions.
The BofA survey included 189 participants managing $508 billion in assets. A net 47% of respondents now expect a weaker global economy over the next 12 months, a 20 percentage point decline from July. However, 76% still anticipate a “soft landing” for the global economy, indicating a gradual slowdown rather than a severe downturn or no slowdown at all.
This optimism is largely fueled by expectations for lower interest rates. An overwhelming 93% of respondents foresee short-term rates decreasing over the next 12 months, the highest percentage in 24 years. Furthermore, 60% of those surveyed predict that the U.S. Federal Reserve will implement four or more rate cuts within the next year.
The survey also highlighted a significant shift in allocations to Japanese equities. Investors moved from a net 7% overweight in July to a net 9% underweight in August, marking the first net underweight since July 2023 and the largest one-month drop since April 2016.
