Trump Ignites Investor Optimism For Growth, Small Caps, US Dollar: Bank Of America Survey

Investors are growing bullish on the U.S. economy and the stock market, yet also fearing rising inflation prospects following Donald Trump's election win, according to the latest Bank of America's November Global Fund Manager Survey.

The survey, conducted from Nov. 1-7, highlights a significant shift in investor sentiment after Trump's victory and the likely Republican sweep of Congress.

The results show that fund managers are positioning for a high-growth, high-inflation environment, with bets favoring U.S. stocks, small caps, and the strength of the greenback.

Post-Election Shift: US Growth Expectations And Inflation On The Rise

The survey found that Trump's victory has dramatically changed growth and inflation expectations among fund managers. Before the election, only a net -10% of respondents anticipated stronger global growth, but post-election, that sentiment jumped to a net +23%—the most optimistic outlook since August 2021.

Similarly, U.S. growth expectations shot up from -22% in October to +28%, reflecting hopes that Trump's policies on tax cuts and deregulation will fuel domestic expansion.

Inflation expectations also saw a sharp reversal. While October's survey indicated a net -44% expecting higher global inflation, post-election results showed a net +10% predicting rising inflation—the first positive reading since August 2021. Among post-election respondents specifically, 10% expect higher inflation in the next 12 months, up from nearly zero earlier this year.

Less Faith In A "Soft Landing" As "No Landing" Scenario Gains Traction

Investor optimism about a "soft landing" for the economy—a scenario where inflation cools without a recession—waned post-election. The probability of a soft landing dropped from 76% pre-election to 55%, while the likelihood of a "no landing" scenario, where growth continues with stubborn inflation, surged from 14% to 33%.

A "hard landing" scenario, implying a recession, remained low at 8%.

With inflation fears on the rise, cash levels, which were elevated before the election at 4.3%, fell to 4.0% post-election as fund managers shifted back into riskier assets.

Also Read: Republicans Set To Hold Slim House Majority: What It Means For Energy, Financial, Defense Sectors

Bullish Bets On US Stocks, Small Caps, And High Yield Bonds

Trump's win has led to a surge in demand for U.S. assets. Among post-election respondents, 29% were overweight on U.S. stocks, up from just 10% in October—a level of enthusiasm not seen since August 2013.

Small caps, in particular, are getting attention, with 35% of respondents favoring them over large-cap stocks, a massive leap from 6% pre-election. High-yield bonds also became popular, with a net 41% favoring them over investment-grade bonds, the highest level in three years.

When asked to identify the best-performing asset classes for 2025, 43% of post-election respondents chose U.S. stocks as the top pick, followed by global stocks at 20% and gold at 15%.

For specific stock indices, the Russell 2000, as replicated by the iShares Russell 2000 ETF IWM which tracks U.S. small caps, emerged as the favorite, with 35% expecting it to lead in 2025.

The Nasdaq 100, at 28%, and MSCI Emerging Markets, at 15%, rounded out the top three picks.

Stronger Dollar Expected To Lead Currency Gains

With Trump's pro-growth policies and potential trade restrictions on the horizon, investors are betting on a strong U.S. dollar for 2025.

According to the survey, 45% of post-election respondents expect the dollar to be the best-performing currency in the coming year, marking a notable shift from pre-election sentiment, where expectations for the dollar were more subdued.

Bullish Catalysts And Bearish Risks Ahead

The survey asked fund managers to identify the most bullish developments they foresee for 2025, and the answers reflect optimism about Trump's domestic economic policies.

Post-election respondents named a potential U.S. tax cut as a major catalyst, with 33% citing it as the most bullish driver for markets in the coming year. Meanwhile, 35% pointed to a growth rebound in China—a factor that has consistently been a positive market force in recent years.

Other factors with bullish potential included AI-driven productivity gains (15%) and the possibility of Federal Reserve rate cuts (15%), though these were cited less frequently.

Fund managers remain wary of certain risks, particularly a potential "disorderly rise" in bond yields and escalating global trade tensions. Among post-election respondents, 50% identified a sudden spike in bond yields as the top "tail risk" for 2025, while 30% pointed to the risk of a new global trade war.

With Trump's administration likely to impose tariffs and adopt a hawkish stance on trade, concerns over strained relations with key trading partners such as China and the European Union are weighing on investor sentiment.

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