MW These contrarian trades would be big winners from 'no landing' scenario, Bank of America says

By Jules Rimmer

U.S., emerging market, small-cap and energy stocks all would be contrarian plays if the U.S. economy keeps accelerating, a leading strategist said Tuesday.

BofA's strategist Michael Hartnett identified these trades based on the latest global fund manager survey the bank produces. A no-landing scenario is one where the U.S. economy keeps accelerating rather than slows down.

Related: Bank of America's Hartnett, pessimistic about stocks entering the year, has these fears even as tariff war dissipates

Just 6% of those polled expected a no landing, versus 61% seeing a soft landing and 26% expecting a hard landing, the fund manager survey showed.

Polled during the run-up to Sino-American trade negotiations in Geneva last week, respondents were slightly less bearish than the previous month.

Investors expecting the U.S. economy to contract in 2025 fell to a net figure of just 1% versus 42% during the April vote. This outcome would reduce expectations for the Fed easing and lend greater support to the dollar.

Despite this consideration, exposure to the dollar continued to shrink to a 19-year low and a net 17% of fund managers polled said they were underweight the dollar at this juncture.

The negative stance displayed towards the U.S. currency goes a long way to explaining why the only region to register increased commitments of capital in May was eurozone equities XX:SXXP. Here, the overweight positioning expanded from 22% to 35% overweight, largely at the expense of U.S. equities.

The chart below illustrates the scale of the relative shift in allocation:

Fund managers softened their bearish stance, but in a way that still suggests the pain trade is moderately higher, especially with cash levels still elevated at 4.5%. The confluence of agreements being reached between the U.S and China, Pakistan and India and potentially Russia and Ukraine in Istanbul later this week, serves as a significant catalyst for improvement in trading sentiment.

Asset allocators made a good fist of predicting the upshot of trade talks between the U.S. and China, predicting tariffs on the world's number-two economy would settle at 37%, versus the 30% ultimately agreed. Nonetheless, 62% of fund managers remain convinced that the top tail risk for 2025 is a trade war triggering global recession.

One note of warning sounded was the revelation that three-quarters of portfolio managers believe tax cuts will increase the U.S. deficit with all the repercussions for U.S. bond yields that entails.

-Jules Rimmer

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May 13, 2025 07:44 ET (11:44 GMT)

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