Investors' Economic Optimism Surges to Level Not Seen Since 2011

(Bloomberg) -- Investors haven’t been this optimistic on the global economy since 2011, joining small businesses in taking a glass-half-full outlook as a new administration takes over in Washington.

A full 23 percent of investors expect an outright “boom,” according to a survey released Tuesday by Bank of America Merrill Lynch, while the number predicting negligible growth over the next 12 months has fallen by more than half to 43 percent.

The optimism comes amid forecasts global growth will pick up and as Donald Trump promises to cut taxes, boost fiscal spending and loosen regulations in moves that could boost corporate earnings.

“Macro optimism is surging,” wrote the team, led by Micheal Hartnett, Bank of America’s chief investment strategist.

The bank surveyed global fund managers during the first week of February, with respondents having a combined $630 billion in assets under management. The level of optimism is the highest seen since the firm’s survey in early 2011, according to the chart below.

In a separate note on Tuesday, the firm’s credit team took a similarly rosy tone.

“The U.S. economy is not only humming on all cylinders, but in our view the optimism associated with a clean sweep by the Republicans in Washington is likely to create a self-fulfilling period of strong markets and at least the potential for strong growth,” the credit analysts wrote.

Of course, there are risks. The fund managers said European elections posed the greatest threat, followed by a trade war and a crash in global bond markets. Also, if the economy heats up faster than anticipated, the Federal Reserve could end up falling behind the curve and be forced to raise rates at a faster pace than is currently priced in.

Bank of America’s credit strategists also worried that the optimism may be overdone and that investors may have put too much faith in Trump and the Republican party.

“This sets up the market for two potential scenarios: either a series of hikes that hurts credit investors, or a fall in confidence akin to the debt ceiling debate of 2011,” according to the strategists, who were led by Michael Contopoulos.

But it’s not just Wall Street that’s feeling good, with small businesses also seeing happy days ahead. According to the National Federation of Independent Businesses’ monthly survey, January saw the highest level of optimism in more than a decade.

To contact the reporter on this story: Julie Verhage in New York at jverhage2@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Eric J. Weiner