- Despite surging bond yields and oil prices, investors remain broadly bullish on equities: 49% of money managers surveyed by Bank of America remained overweight global equities in September, down slightly from August but still the most common overweight position. The survey of 170 investors managing $470 billion in assets found that expectations for double-digit earnings-per-share growth over 12 months reached their highest level since August 2021, with 38% expecting a global economic “boom.”
- The U.S. 10-year Treasury yield breached 5% on Tuesday as geopolitical risks from the Iran war kept oil above $100 a barrel. Bond allocation fell to its lowest level since May 2022, indicating investors are rotating away from fixed income despite higher yields. Equities have delivered 10.8% year-to-date gains (S&P 500) and 11.8% gains (Nasdaq Composite), with Japanese and Korean stocks also rallying despite volatility.
- Major investment firms maintain pro-equity stances despite recent AI safety warnings: BlackRock strategists said “higher rates and strong equities need not be contradictory” when higher yields reflect stronger growth and investment. UBS Chief Investment Officer Mark Haefele stated the key question is not whether AI development slows, but whether AI demand and monetization will continue expanding—and his firm believes the answer is yes. Both maintain AI infrastructure and software overweights.
- The AI investment cycle remains resilient: BlackRock and UBS strategists argue that AI-related capex can support growth and earnings even as the investment boom absorbs capital and power resources. Federated Hermes flagged semiconductor capacity constraints and power bottlenecks as near-term headwinds, but “no signs of these bottlenecks abating” suggests structural supply-demand imbalances may persist, supporting infrastructure stocks.
What Happened?
Despite bond yields spiking above 5%, oil prices holding above $100 per barrel, and recent AI safety concerns, Bank of America’s Global Fund Manager Survey revealed that investors remain broadly overweight equities. A net 49% of 170 money managers managing $470 billion remained overweight global equities in September, marking a slight pullback from August but still the most common overweight position. Expectations for double-digit earnings-per-share growth over 12 months reached their highest level since August 2021, with 38% of respondents expecting a global economic boom. Bond allocations fell to their lowest level since May 2022, indicating investor rotation away from fixed income despite higher yields.
Why It Matters?
For equity investors and allocators, the persistence of bullish positioning despite macro headwinds (higher rates, geopolitical risk, AI safety concerns) suggests that equity earnings growth and AI capex expectations are more powerful than near-term volatility. For bond investors, the collapse in bond demand and allocation to 5-year lows indicates that rising yields are not yet attractive enough to compete with equity growth narratives. For AI infrastructure companies and semiconductor suppliers, BlackRock and UBS’ continued infrastructure overweights validate that capex cycle strength and pricing power remain intact despite safety concerns. For the broader market, the divergence between macro risks and investor positioning suggests conviction in earnings growth may be masking structural vulnerabilities—either earnings expectations prove accurate and equities sustain valuations, or disappointment follows a correction.
What’s Next?
Monitor the Federal Reserve’s rate decision later today; if hawkish guidance follows the expected 25bp hike, it could test investor conviction in equities. Watch for next week’s earnings season guidance from major tech and AI infrastructure companies; forward guidance changes would reveal whether companies see continued demand or slowdown pressure. Track the next Bank of America fund manager survey to see if September’s 49% overweight position persists or trends lower if macro risks intensify. Monitor oil prices for any breaks above $105; sustained supply shocks could push yields higher and test equity valuations. Finally, watch for further AI safety announcements or regulatory movements; if governments impose material constraints on AI capex, the earnings growth expectations supporting current positioning would be invalidated.
Affected Tickers & Coins: BAC, BLK, UBS
Source: CNBC
