Made in America

Global fund managers are bullish on U.S. stocks, for the first time in more than a year, with investors having the most favorable outlook for corporate profits in seventeen years, according to Bank of America Merrill Lynch's benchmark monthly survey, even as they prefer defensive sectors to cyclical plays amid broader concerns over inflation and the prospects for an escalating trading war.

The June edition of BAML's "Fund Manager Survey, which polled 184 investment managers who run more than $684 billion worth of assets, also noted that funds are moving cash from Eurozone stocks and emerging market equities into U.S. assets, while average cash balances on their books fell 10 basis points to 4.8%. Interestingly, allocation to commodities rose to an 8-year high, the survey showed, with overweight topping levels last seen when U.S. crude was trading at $105 a barrel. 

"Investors have their eyes on the US this month," said Michael Hartnett, chief investment strategist, "with a record high favorable outlook for profits and a return to US equity allocation. Decoupling is back in vogue."

A net 78% of the investors polled expect core inflation to rise over the next year, the survey indicated, down modestly from the previous month, while only a net 1% think the global economy will strengthen over the same time period - "barely above the boom/ bust threshold and still at their lowest since 11th Feb'16 when the S&P 500 hit an intraday low of 1810."

Tech stocks remain the favorite trade in the survey, BAML noted, with the so-called "long FAANG+BAT" trade -- a reference to a group of stocks that includes Action Alerts Plus holdings Facebook Inc. (FB - Get Report) , Amazon Inc. (AMZN - Get Report) , Apple Inc. (AAPL - Get Report)  as well as Netflix Inc. (NFLX - Get Report) , Google parent Alphabet (GOOGL - Get Report) as well as Asia tech giants Baidu Inc (BIDU - Get Report) , Alibaba Group Holding (BABA - Get Report) and Tencent Holdings Ltd. (TCEHY) -- topping the survey for a fifth consecutive month.

Shorting U.S. Treasury bonds and buying the U.S. dollar were also considered two of the three "most crowded" trades. 

In terms of potential risks, investors again cited the threat of a "hawkish" mistake from either the U.S. Federal Reserve or the European Central Bank, while a Eurozone or emerging markets crisis overtook concerns of a global trade war.