The two assets the pros are bullish about now

Every month, Bank of America rolls out a survey to see where the world’s fund managers stand on markets and the economy. And the latest one reveals a shift – the 214 pros surveyed (managing a whopping $576 billion in portfolios between them) have rapidly increased their holdings in European stocks and have tempered their reliance on US stocks. Here’s a look at what they’re saying now and where they’re putting the big money.

Okay, so what did the survey find?

This move into European stocks was anything but subtle: this was the group’s second-biggest jump in 25 years. But maybe that was bound to happen. After all, in the month before, the survey revealed record positioning in US stocks. So as that huge position cooled, those funds had to go somewhere.

Overall, the weeklong survey that ended on January 16th showed that these folks remain positive about the outlook for markets – they’re just not as positive as they were. A net 41% of them were holding bigger-than-benchmark (or “overweight”) positions in global stocks – albeit less than the three-year high of 49% in December.

So, if January’s concerns over the impact of potential new US tariffs prove unfounded, there could be potential for lagging and sold-off stocks to play catch-up.

But for January at least, these investors were feeling bullish about two things: the US dollar and stocks – and bearish about everything else, especially bonds, where their collective underweight was the starkest since October 2022.

That feeling underpinned the bump in eurozone asset allocations, which swung from a 25% underweight position to a net 1% overweight – its widest monthly swing since 2015.

These investors said they were 19% overweight on US stocks, compared to their record 36% overweight position the month before.

Where do the pros see things headed?

A net 14% of folks answering the survey expected big-cap stocks to outperform – compared to December’s net 12% who said small-caps would likely steal the spotlight.

A net 1% expect value stocks – i.e. shares that are trading for less than their intrinsic value – will outperform ones from so-called growth stocks. That’s compared to 20% in December and a low not seen since July. And just 14% see high-dividend yield stocks outperforming low-yielding ones – the lowest since October 2020.

This suggests that these folks are feeling a tad more hopeful about the market's overall prospects. That said, they probably won’t rush with abandon toward the Magnificent Seven stocks—this group put those at the top of its list of most-crowded trades, followed by the US dollar and cryptocurrencies.

Also of note: the respondents left their own allocations to cash unchanged in January at a meager 3.9% – the lowest since June 21. That tends to be a “sell signal” – according to the survey’s cash rule of below 4% says that when folks are holding very little cash and are more than 96% invested, it’s a good time to take your profits. Since 2011, there have been 12 prior signals, with global equity returns of just 2.4% in the one month after and 0.7% in the three months after the “sell” sign flashed.

It’s an alarm you may want to seriously consider: the fund managers surveyed put the probability of a no-recession “soft landing” for the global economy at just 50%, compared to 60% the month before. Some 41% said the big risk is that stubborn inflation forces the Federal Reserve to hike US interest rates, followed by fears of a recession-stoking trade war.

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