A notable shift in investor sentiment is emerging, marked by a substantial increase in capital flowing into risk assets. This change signals a stronger conviction among fund managers regarding the trajectory of global economic expansion and corporate profitability, diverging significantly from prior cautious positions.
- Bank of America (BofA) survey conducted July 3-7, 2025, involving 175 institutional investors managing $434 billion.
- Proportion of investors holding elevated risk reached a 23-year high since BofA’s surveys began in 2001.
- 59% of respondents no longer anticipate a U.S. recession within the next year, a significant shift from early 2025.
- U.S. equities and the technology sector are the primary recipients of renewed optimism.
- Top risks identified include a potential trade war, persistent high inflation, and a weakening U.S. dollar.
- Investors anticipate the average U.S. tariff rate to rise to 14%.
Strategic Capital Allocation
This renewed optimism is primarily funneling into U.S. equities and the technology sector. Allocations to U.S. stocks saw their most significant boost since December of the preceding year. Simultaneously, the technology sector registered its most robust three-month growth spurt since 2009. Furthermore, the Eurozone has become the most “overweight” region in fund managers’ portfolios over the past four years, signaling a substantial positive reappraisal of its economic outlook.
Shifting Economic Outlook
A notable pivot in U.S. economic expectations is clearly reflected in the survey findings. A striking 59% of participants now no longer foresee a U.S. recession within the next year, marking a considerable departure from sentiments prevalent in early 2025. This burgeoning confidence also extends to corporate earnings projections, with optimism reaching levels not seen since 2020. In response, key market benchmarks like the S&P 500 have set new historical highs, while Nasdaq 100 futures have registered an increase.
Identified Market Risks and Tariff Projections
Despite the widespread optimism, the survey also pinpoints several key investor concerns. The most frequently cited risk is a potential trade war, which could precipitate a global recession. This is closely followed by the specter of persistent high inflation, a factor that might dissuade the Federal Reserve from enacting interest rate cuts. The third notable risk identified is a sharp depreciation of the U.S. dollar. Additionally, investors are projecting an increase in the average U.S. tariff rate to 14%, representing a one percentage point rise from expectations held in June.
Prevailing Market Trades
The survey also provided insights into the most popular market positions adopted by institutional investors:
| Trade Position | Share of Investors |
| Short U.S. Dollar | 34% |
| Long “Magnificent Seven” (Top Tech Giants) | 26% |
| Long Gold | 25% |
| Long EU Equities | 6% |
Market Outlook
Notwithstanding the notable surge in risk appetite, BofA experts contend that the market is not yet exhibiting signs of overheating. They attribute the prevailing positive environment to robust underlying fundamentals, asserting that the “current situation is supported by fundamental factors—from the artificial intelligence boom to a strong labor market.” The enduring nature of this elevated investor confidence, particularly against a backdrop of potential geopolitical and economic volatilities, will serve as a critical gauge in the coming months.
Jonathan Reed received his MA in Journalism from Columbia University and has reported on corporate governance and leadership for major business magazines. His coverage focuses on executive decision-making, startup innovation, and the evolving role of technology in driving business growth.