S&P 500, Nasdaq jump higher as key inflation data comes in cool

Investors are increasingly confident the global economy will achieve a “soft landing,” where inflation subsides but overall economic activity doesn’t significantly deteriorate amid higher interest rates.

In Bank of America’s August Global Fund Manager Survey, released on Wednesday, 76% of respondents said a soft landing is the most likely outcome for the global economy in the next 12 months. This marked the highest percentage of respondents projecting such an outcome dating back to May 2023.

Bank of America chief investment strategist Michael Hartnett, who conducts the survey, noted that the bet for a soft landing conviction is “driven by expectations for lower interest rates.” In the latest survey, 93% of investors said they see lower short-term rates in the next 12 months, marking the highest level of confidence in lower rates in the past 24 years.

Additionally, 60% of investors expect four or more interest rate cuts this year. This falls in line with current market pricing, which projects four interest rate cuts in 2024, per Bloomberg data.

The 585 respondents were surveyed between Aug. 2 and Aug. 8, meaning the survey was conducted after a weak July jobs report that increased recession fears and sent markets into a tailspin. But largely, how investors’ assessment of the economic narrative fell in line with what many economists have argued: The soft landing is still in sight, but Fed rate cuts are needed to get there.

In a weekly note to clients, Morgan Stanley chief global economist Seth Carpenter said he sees the Federal Reserve cutting interest rates by 75 basis points this year.

“The cumulative evidence to date shows a solid job market and a consumer who continues to spend,” Carpenter wrote. “Those factors are self-reinforcing and can keep momentum going. The market has eased rates for the Fed, so we just need the Fed to follow through on our baseline for the soft landing to materialize.”