(Bloomberg) -- There are early signs that investors are preparing for equity laggards to rally on bets that US President Donald Trump could take a softer-than-feared stance on global trade, according to a survey by Bank of America Corp.
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While fund managers are still largely positioned for announcements by Trump on tariffs and immigration cuts, the bank’s survey found a sharp rotation away from US stocks and into Europe this month.
If concerns around Trump’s tariff proposals prove to be “unfounded,” investor allocations would remain risk-on and stock markets that have trailed the powerful rally in the US would play catch up, BofA strategist Michael Hartnett said.
Allocation to European equities surged to a net 1% overweight in January from 22% underweight, the second-largest jump in exposure to the region in 25 years, the survey showed. Investors pared elevated positions to the US, although global equity allocation remains high at a net 41% overweight.
With Trump inaugurated as the 47th US President on Monday, investors are game-planning early policy action from his administration. He said he intended to impose previously threatened tariffs of as much as 25% on Mexico and Canada by Feb. 1, but stopped short of announcing immediate levies against China.
Markets are also worried that Trump’s “America First” policies will stoke inflation. The greenback and bond yields have surged since his election victory in November, while US equities have outperformed global stock markets.
BofA’s survey — conducted from Jan. 10 to Jan. 16 and canvassing 182 fund managers with $513 billion in assets — showed inflation expectations are back at the highest since March 2022, when the Federal Reserve began its steepest rate-hike cycle in decades. Still, only 2% expect the central bank to raise rates this year.
About half the participants expect economic growth to slow over the coming year, down from 60% in December. About 38% expect a so-called no landing, while 5% predict a recession.
Other key findings in the poll:
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“Froth has been removed” from markets as fund manager sentiment, as a measure of cash levels, equity allocation and global growth expectations, dips to 6.1 from 7.0 in December
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Allocation to bonds is at the lowest since October 2022 at a net 20% underweight
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A net 59% of investors expect lower short-term rates, the smallest proportion since July 2023
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China growth acceleration seen as the most bullish for risk assets in 2025, followed by Fed rate cuts and AI productivity gains
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Fund managers say Fed rate hikes caused by inflation is the biggest tail risk, followed by a recessionary trade war