Despite more intense hand-wringing about artificial intelligence stocks and jarring politics, this month’s survey looks mighty familiar. — Reuters
IT was a year of two halves in world markets in 2025: a tariff-shocked first half and a relief-rally second, yet the initial instincts of global investors 12 months ago proved mostly right. That may make some wonder how actively they should trade at all.
December soothsaying on the year ahead always tends to be a bit artificial, given how fast economies, policies, markets and geopolitics can shift. This year, more than most, that felt especially true.
Calendar-based investing has its roots in tax-date cutoffs and annual planning, but year-end forecasting is now largely tradition – a convenient moment to reflect and take stock.
With 24-hour, and potentially 24/7, stock trading nearing, there’s no shortage of opportunity to trade. Banks and brokers clean up in volatile years and had a bumper 2025 as nervous investors and savers chopped, changed and hedged wild swings in financial prices.
But it’s worth looking back to December 2024 for a clue as to how major asset managers saw this year panning out and to gauge how they’d have done if they’d just closed their eyes and let it all ride.
One simple way to view it is to look at where consensus surveys saw funds positioned late last year.
Bank of America (BofA) provides one of the most closely watched and frequently updated surveys of fund managers around the world, with its latest edition, released on Tuesday, polling more than 200 investment houses managing more than half a trillion dollars in assets.
Aggregate readings from its monthly survey this time last year showed “super-bullish” stock sentiment, low cash levels, rising growth and profits optimism, dissipating recession fears and expectations for lower interest rates.
That looked very different come April with US president Donald Trump’s tariff shock and amid numerous geopolitical disturbances through midyear.
But the positioning into the turn of last year – fuelled by post-election bets that Trump’s return to the White House would usher in tax cuts and deregulation to overwhelm world trade jitters – ended up largely correct.
At least that’s how it played out on stock markets this year, with US earnings growth tracking 13%, only slightly below 14% estimates a year ago.
After a near heart attack in spring, the S&P 500 is heading into year-end up 15%, led by 20% gains in the “Magnificent Seven” mega caps and a 20% rise in MSCI’s all-country index.
Forecasts of 2% US gross domestic product (GDP) growth and over 3% world GDP growth for 2025 look on track, if not exceeded.
Fears of a world trade shock in 2025 look misplaced, with the United Nations trade body saying global trade likely grew 7% this year to a record US$35 trillion.
After a long hesitation amid elevated inflation and the impact of tariff hikes, the Federal Reserve eventually obliged with three more interest rate cuts. The European Central Bank cut four times and other G7 central banks eased as well.
What’s more, the BofA survey’s record-high exposure to financial stocks this time last year also paid off – the MSCI World’s financial sector is up 25% year to date.
But there were flubs and some were related. Back then, the BofA survey showed funds were the most overweight US versus European stocks in 12 years, broadly neutral on long-term bond yields, and tilted toward US small caps in the Russell 2000 over the tech-heavy Nasdaq.
In the end, eurozone stocks outstripped the S&P 500 by five percentage points and rose more than twice the Wall Street benchmark in dollar terms. Long-term G7 bond yields climbed everywhere despite central bank easing, and small caps lagged the Nasdaq yet again.
Despite more intense hand-wringing about artificial intelligence stocks and jarring politics, this month’s survey looks mighty familiar.
BofA analysts said it’s the most bullish reading in 3½ years, with macro optimism the highest in four years on a “run-it-hot” belief in government policies.
Cash levels are at a record low 3.3% – often seen as a sell signal – and a net 38% of funds expect long-term rates to be higher next year, the most in more than three years.
“Long Magnificent Seven” stocks are still considered the most crowded trade, as they were last year too. After stellar 63% gains this year, gold joins them in second place on that list. — Reuters
Mike Dolan is a columnist for Reuters. The views expressed here are the writer’s own.
