Thanks to positive signals from the US Federal Reserve, there was a celebratory mood on the stock markets in the last few weeks. According to a Bank of America survey, investors are more optimistic than they have been since the beginning of 2022.
• Expected interest rate turnaround creates a good mood
• BofA survey finds new optimism among institutional investors
• Hope for a “Goldilocks” economy in 2024
From the last Fed meeting, market observers took away the message that the US monetary authorities no longer consider a key interest rate of over 5 percent necessary in view of the significantly lower inflation rates. The US key interest rate is currently 5.25 to 5.50 percent. But since Fed Chairman Jerome Powell said inflation was cooling toward its 2 percent target, the market has been speculating that interest rates could be cut even more in the new year than previously forecast. Stocks would benefit from this, after all, it would make them more attractive again compared to savings accounts with lower returns. In addition, loans are becoming cheaper, companies can finance themselves more easily and investments are becoming more affordable.
Mood brightens
As expected, the Fed’s emerging turnaround is well received by investors. According to a survey conducted by Bank of America between December 8th and 14th among 219 fund managers, this group has not been as optimistic as it currently is since January 2022. According to “finanzmarktwelt”, the survey showed that the cash allocation was reduced from 4.7 percent in the previous month to 4.5 percent.
So while cash in funds has fallen to a two-year low, equities are now more overweight than they have been since the Fed began hiking interest rates. In the course of selling off their cash, investors invested their money not only in stocks but also in bonds. According to the survey, they are now more overweight in bonds than they have been in 15 years. On the other hand, they are more negative about raw materials than they have been since March 2009.
According to Business Insider, BofA top strategist Michael Hartnett attributes investors’ optimism to the hope of a “Goldilocks” economy in 2024, in which growth will neither run too hot nor cool down too much. The survey also revealed, among other things, that 66 percent of the participating fund managers expect a so-called “soft landing” for the global economy in 2024. This would be a scenario in which inflation cools without causing a recession or increase in unemployment.
Too much euphoria?
But investors may also be interpreting Powell’s statements too optimistically. An indication of this could be that individual Fed members have recently tried to dampen the expectation of imminent interest rate cuts: “We’re not really talking about interest rate cuts at the moment,” said John Williams on the US television channel CNBC. It is “premature” to talk about one Interest rate cut to consider in March, said the president of the regional central bank of New York.
Editorial team finanzen.net
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