Just 4% of fund managers see a hard landing - BofA survey

Record rise in equity allocations by global fund managers in MayJust 4% of fund managers see hard landing66% of respondents expect Hormuz bottleneck to end in next few months62% of respondents target 6% on 30-year treasury yields, 20% target 4%40% of respondents say second wave of inflation is biggest tail riskCash levels drop to 3.9% from 4.3%, biggest monthly drop since February 2024The Bank of America Global Fund Manager Survey (FMS) is one of the most influential monthly reports in the financial world. It polls roughly 200 to 400 institutional fund managers (people managing hundreds of billions of dollars in hedge funds, pension funds, and mutual funds) to see how they are positioned in the markets.It's useful as a contrarian indicator. In fact, when positioning gets overstretched on one side or the other, the risk of aggressive unwinding increases. Complacency is punished in the markets. There's generally a catalyst triggering the reversals or just multiple factors signalling an inflection point.I wanted to highlight the "just 4% of fund managers see a hard landing" in the headline. I think that's the strongest signal of market optimism if you couple it with the "record rise in equity allocations in May". There's too much optimism priced in the market. Although a second wave of inflation is now the biggest tail risk, I would say that consecutive Fed rate hikes would be even worse. If conditions in the Strait of Hormuz don't change and oil prices remain elevated, then Fed tightening into such conditions would trigger a crash in the stock market and that's when the hard landing probabilities will start to climb quickly.The stock market rally in April was justified by positive expectations about a US-Iran deal and a repricing of negative growth fears, but the parabolic gains in May look "irrational" given the risk asymmetry now.