A survey of fund managers released by Bank of America on Tuesday showed that global investor optimism in October saw its largest increase since June 2020, due to the Federal Reserve's interest rate cuts, China's stimulus policies, and expectations of a soft landing for the US economy.

The survey, conducted from October 4th to October 10th, involved 231 fund managers who manage assets worth $574 billion.

The survey indicated that cash allocations fell from 4.2% in September to 3.9%, while equity allocations rose to 31%, and bond allocations dropped to 15%, reaching a historical low.

Bank of America stated, "Our broadest (fund manager survey) confidence indicator, based on cash levels, equity allocations, and economic growth expectations, rose from 3.8 to 5.6, marking the largest monthly increase since June 2020."

The survey revealed that investors anticipate that the upcoming US elections are most likely to affect trade policies (47%), followed by geopolitics (15%) and taxation (11%).

In terms of how investors are positioning based on the narrative of a soft landing, the survey showed that global equity allocations experienced the largest increase since June 2020.

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"Sell signal" reappears

However, according to the bank's own indicators, a sharp decline in cash levels triggered the first contrarian "sell signal" since June last year. Strategists led by Michael Hartnett wrote that a significant increase in equity allocations, coupled with a decrease in bond allocations, and a drop in cash levels in global investment portfolios from 4.2% last month to 3.9% in October, triggered a "sell signal" for global stock markets.

The bank stated, "Since 2011, there have been 11 'sell' signals triggered, with global stock markets returning -2.5% one month after the 'sell' signal was triggered, and -0.8% three months after the 'sell' signal was triggered." The MSCI All-Country World Index has risen by 0.6% so far in October, on track for a sixth consecutive month of gains.

The bank stated, "Bubbles are increasing."Driven by central bank interest rate cuts, economic recovery, and China's fiscal and monetary stimulus policies, global stock markets continued their bull market trend after a round of fluctuations in early September. Boosted by the strength of the U.S. stock market, the MSCI Global Index hit a historical high on Monday.

The U.S. third-quarter earnings season also started well, with major banks' financial reports announced last week bringing confidence to the market. The S&P 500 Index continued its five-week rally on Monday, setting the 46th historical closing high for this year.

This optimistic sentiment is reflected in the large shift of respondents towards emerging markets, non-essentials, and industrial stocks, while abandoning defensive sectors such as daily necessities and public utilities. Surveys show that the biggest winners of China's stimulus plan are emerging market stocks and commodities, while the biggest losers are government bonds and Japanese stocks.