What's Biden's Top Focus in First 100 Days? Fund Managers Weigh In

As President Joseph Biden settles into the White House, 26% of fund managers surveyed in January by Bank of America Global Research say his main focus in the first 100 days will be on health care, while 25% cite infrastructure, 19% inequality and 11% environment.

Asked what Biden's most likely policy response to reduce the debt burden will be, 34% believe it will be higher taxes, 26% inflation and 23% Modern Monetary Theory.

The survey was conducted Jan. 8 to Jan. 14 among 217 investors with $596 billion in assets under management.

Global Economic Growth

Nine in 10 global fund managers expect the global economy to grow over the next 12 months, the third highest growth expectations on record. Fifty-nine percent say the global economy will get "a lot stronger," up three percentage points from the December survey.

Net 87% of investors in the survey expect global profits to improve over the next 12 months, the best outlook on profits since February 2002, BofA said.

A record net 83% of respondents anticipate a steeper yield curve — higher than 2008 Lehman bankruptcy, the Federal Reserve's 2013 "taper tantrum" and the 2016 U.S. presidential election, according to BofA.

Expectations of higher inflation in the next 12 months also set a record in January, cited by 92% of fund managers.

BofA noted that the "Goldilocks" consensus has peaked, as only 41% of investors still hope for higher growth and lower inflation in January, down from 47% in November.

Allocations

Investors' cash levels fell to 3.9% from 4% in December, remaining a fund manager cash rule's sell signal. The cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities, and when the cash balance falls below 3.5%, a contrarian sell signal is generated.

Cash allocations remained unchanged from December at 1% underweight.

Fund managers' equity allocation rose two points month over month to net 53% overweight, investors' optimism on stocks at the highest level in two years — BofA considers anything above 50% as extremely bullish.

Emerging markets equity allocations increased seven points from December to net 62% overweight, their highest overweight ever, making the region the one most preferred by investors.

Allocation to commodities hit a 10-year high, increasing one point to net 19% overweight in January.

In the January survey, 30% of investors say the coronavirus vaccine rollout is the biggest tail risk, followed by 29% who worry about a "tantrum" in the bond market, 18% a bubble on Wall Street and 14% inflation.

BofA said January was the first month since October 2019 when long tech was not the most-crowded trade. It ceded the top spot to long Bitcoin, cited by 36% of respondents. Thirty-one percent named long tech and 23% said short U.S. dollar.