"US Stock Market Rally Continues" Wall Street Investor Sentiment Hits Highest in 2.5 Years

Investor sentiment on Wall Street in the United States has become the most optimistic in about two and a half years. More than 40% of fund managers expected large growth stocks, including Nvidia, to continue leading the New York Stock Exchange rally.

[Image source=Reuters Yonhap News]

According to the regular survey (FMS) conducted by Bank of America (BoA) on fund managers on the 18th (local time), the June FMS investor sentiment, based on cash levels, stock allocation, and growth outlook, recorded the most optimistic level since November 2021.

At the same time, the cash ratio held by asset management firms fell to its lowest level in three years. While investors expanded their positions in stock investments, their positions in bond investments recorded -17%, the lowest level since November 2022. Regarding the asset class expected to gain the most from money market fund (MMF) redistribution, 32% of respondents chose U.S. stocks.

These survey results add weight to the view that the New York Stock Exchange, which has been hitting record highs daily recently thanks to the AI rally led by Nvidia, will continue its bullish trend. Bloomberg News diagnosed, "Investors are likely to continue injecting funds into the record-breaking rising market," adding, "They are prepared to fuel the stock rally." Earlier, a consumer survey released by the New York Federal Reserve also showed that optimism about stock prices rising one year later reached the highest level in three years.

In this survey, 69% of fund managers named the so-called Magnificent 7 as the 'most crowded' trades. This not only exceeds the 50% range of the previous survey but is also the highest level since the tech stock boom in October 2020. Forty-one percent of respondents predicted that these large growth stocks would lead the New York Stock Exchange rally.

Nvidia, the AI leader, reclaimed the top spot in market capitalization by hitting an all-time high on the day. The S&P 500 index, centered on large-cap stocks, also closed higher that day, fueled by the AI boom and corporate earnings expectations, marking the 31st record high this year. Recently, movements by investment institutions to raise their year-end S&P 500 index forecasts have been confirmed one after another on Wall Street.

In this survey of 206 fund managers, 73% of respondents forecast that the U.S. will not experience a recession in the next 12 months. Regarding scenarios, 26% and 64% expected a no-landing and soft landing, respectively. Only 5% anticipated a hard landing, which means a sharp economic slowdown, marking the lowest level.

Additionally, eight out of ten respondents expected the U.S. Federal Reserve (Fed) to cut interest rates two or more times over the next 12 months. The most common timing for the first cut was September. According to the Chicago Mercantile Exchange (CME) FedWatch, the current federal funds futures market reflects about a 70% chance that the Fed will lower rates by at least 0.25 percentage points at the September Federal Open Market Committee (FOMC) meeting.

Meanwhile, although the probability is low, 32% of respondents cited 'inflation' as the so-called 'tail risk' that could cause a major economic shock if it occurs. Geopolitical risks followed at 22%, and the U.S. presidential election at 16%. Investing.com evaluated, "Although less than the previous month (41%), inflation remains a major concern for investors."