By Martin Baccardax
Some of the world's biggest investors held their bullish outlook on stocks even before signs of detente between the U.S. and Iran emerged, according to Bank of America data published Tuesday. Most say growth and profits will outweigh the risk of interest-rate hikes tied to the monthslong conflict and the surge in crude oil prices.
BofA's monthly Global Fund Manager Survey, which polled institutional investors managing more than half a trillion dollars over the week ending in June 11, showed continued optimism, with respondents indicating the highest levels of economic and corporate profit growth forecasts in three months. However, some managers trimmed some long positions and boosted their cash buffers modestly ahead of the summer months.
Stocks have powered relentlessly higher since the start of the second quarter, with the S&P 500 rising about 15% and the tech-focused Nasdaq surging 24%. Both indexes sit just shy of their all-time peaks.
Gains for global stocks have been equally impressive. Japan's Nikkei 225 has climbed more than 37% this year, while South Korea's Kospi is up 102%. The MSCI World index of benchmark shares is up just over 9% for the year.
Oil prices, meanwhile, have fallen nearly 30% since their early May peak. They were last marked just north of $80 a barrel -- only $10 above prewar levels -- in early Tuesday trading as investors adjust their bets heading into the newly agreed, but still unpublished, U.S.-Iran cease-fire terms.
The effect of lower oil prices on interest rates, however, has yet to play out in the BofA survey. More than half of those polled earlier in the month expect new Federal Reserve Chairman Kevin Warsh to execute a "hawkish hold" on rates Wednesday in Washington, but see increases coming over the next 12 months as price growth tied to the U.S. war with Iran continue to pressure headline inflation readings over the coming months.
Rate hikes have come from both the Bank of Japan -- which on Tuesday lifted its benchmark lending rate to 1%, the highest in 31 years -- and last week's quarter-point increase from the European Central Bank. Last month's rate increase from the Reserve Bank of Australia (though it kept rates steady on Tuesday) as well as expected increases from the Bank of England, have also unsettled global markets.
In fact, inflation remains the market's key "tail risk," according to the BofA survey, replacing worries over the spread of global military conflicts and topping concerns of a bubble in artificial-intelligence stocks.
Headline inflation in the U.S. hit 4.2% last month, the highest in three years, and has surged 1.9 percentage points since the start of the year. That has ripped away bets on a Fed rate cut and stoked a 50-basis-point increase in 10-year Treasury note yields since the end of February.
"Assuming no breakdown of the deal and a renewed surge in oil prices, U.S. headline inflation is likely to have peaked in May," said Simon MacAdam, deputy chief global economist at Capital Economics.
But that doesn't mean the rest of the world is out of the woods.
"In other advanced economies, however, higher inflation is baked in even with oil prices at $80 a barrel, as the lagged effects from the energy shock offset the direct drag on inflation from lower consumer prices of fuel," MacAdam added.
In terms of the tech sector, investors still see it trading at unhealthy levels, with a survey record high of 80% suggesting that long positions in global semiconductor stocks remain the market's "most crowded" trade.
The PHLX Semiconductor index has doubled since the end of last year, and closed at a record high of 14,099.62 points on Monday, indicating a second-quarter gain of 86% so far.
An index of the so-called Magnificent Seven tech giants, meanwhile, has powered 15% higher this quarter, taking its one year gain to around 27%.
Just over a fifth of investors said the current AI investment cycle is in a stage of "euphoria," suggesting the price-to-value relationship has hit a danger zone. But around 56% said the sector's boom is likely to continue.
The global nature of the survey, of course, elicited interest in the FIFA World Cup, which kicked off in Mexico City last week and is being jointly held by the U.S., Mexico, and Canada.
The largest and longest soccer jamboree will include 48 teams and 104 matches over 16 cities, culminating with the World Cup final at New York New Jersey Stadium on July 19.
Just over a fifth of investors predicted Spain will emerge victorious, although polling was taken prior to the team's shocking 0-0 draw with Cape Verde on Monday. Around 19% chose France as the alternative favorite, while 8% opted equally for England, Brazil, or Argentina.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 16, 2026 11:07 ET (15:07 GMT)
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