Optimism on the Economy Is at a Record: Confidence in AI Capex Is Not

One of the most bullish investor surveys on record arrived with its own warning attached.

The same fund managers calling a record no-landing economy now rank AI hyperscaler capex as the likeliest trigger of a systemic credit event.

A Record 54% Of Fund Managers Expect No Landing A record 54% of respondents to Bank of America’s July Global Fund Manager Survey expect no landing for the global economy over the next 12 months. published July 14.

Another 39% expect a soft landing.

Just 2% expect a hard landing, a record low.

Recession risk has never been priced this far out of the picture.

Growth optimism moved with it.

Net 21% now expect a stronger economy, a five-month high, reversing from net 1% expecting weaker growth in June.

The share describing the next year as an economic boom — above-trend growth with above-trend inflation — rose to 41% from 36%, the highest since February 2022.

Stagflation expectations fell to 47% from 58%.

Oil Drags Inflation Forecasts Down: No Fed Hike In Sight Investors cut their year-end 2026 oil forecast by 17%, from $86 per barrel to $71, on a weighted-average basis.

Only 2% expect crude above $90 by December.

Lower crude feeds lower headline inflation, which feeds a Fed that does not move.

Net 4% of investors now expect lower global inflation in 12 months, a swing from net 45% expecting higher inflation in June and the lowest reading since January 2025.

Rate expectations followed.

Net 1% expect higher short-term rates, down from 34%.

Asked whether the Fed would hike before the November midterms, 83% said no.

Read Also: Producer Inflation Drops by 0.3% in June, Backing the Case for a Fed on Hold 48% Say AI Hyperscaler Capex Is The Next Systemic Credit Event Asked to name the most likely source of a systemic credit event, 48% of investors pointed at AI hyperscaler capex, the largest single answer, ahead of private credit at 34% and consumer credit at 5%.

Asked to name the biggest tail risk, 45% said AI bubble, up from 28% in June and displacing second-wave inflation, which fell to 26%.

And asked to name the most crowded trade in the world, 82% said long global semiconductors – as tracked by the iShares Semiconductor ETF (NYSE: SOXX ).

This is the most lopsided answer the survey has produced in years.

That is the contradiction the July survey leaves on the table: nobody is selling the trade they fear most.

They are not exiting it.

Technology allocation slipped to net 18% overweight from net 26%, a trim rather than a rotation.

Only 28% expect a hyperscaler to announce a capex cut this year.

And 48% say AI stocks are not in a bubble, against 43% who say they are.

At the stage of the cycle, 52% place AI stocks in the boom phase, where momentum attracts more buyers.

Another 23% say euphoria, where valuations reach extremes.

BofA’s Contrarian Pain Trades: Duration, Dividend, Defensives BofA’s contrarian read follows from the extremes.

Against a hawkish Fed surprise, the bank’s analyst Michael Hartnett flags long staples and gold versus short semiconductors and healthcare.

Against a peak-boom outcome, it flags long bonds, UK equities and high-dividend yielders versus short industrials and banks.

That last leg has a tell.

For the first time since May 2017, investors expect low-dividend-yield stocks to outperform high-dividend-yield stocks.

Read Also: These 10 Stocks Rallied as Producer Inflation Plunged: Here's Why Photo: YAKOBCHUK V on Shutterstock.com