2025-12 Global DM Monthly Recap

Macro

The macroeconomic picture in December 2025 reveals investor sentiment reaching extremely optimistic levels, primarily driven by strong expectations for a "soft landing" or "no landing" scenario for the global economy. According to the BofA Global FMS survey, the sentiment indicator has climbed to 7.4, marking a new high since July 2021.

• Economic Growth and Profit Expectations: Macroeconomic expectations are overwhelmingly optimistic, with 57% of investors predicting a "soft landing" and 37% predicting "no landing." The proportion anticipating a "hard landing" is only 3%, the lowest level in the past 2.5 years. Both Global Growth Expectations (Net 18%) and FMS Global Profit Expectations (Net 29%) have reached their most optimistic levels since August 2021.
• Inflation and Stagflation Concerns: Despite the positive growth outlook, 58% of FMS investors still expect the global economy to be in a state of "Stagflation" (below-trend growth and above-trend inflation) over the next 12 months. Furthermore, a net 2% of investors anticipate global CPI (YoY) will be higher over the next 12 months, indicating persistent concerns regarding inflation.
• Earnings and Valuation: The 3-month condition for the Global Earnings Revision Ratio (ERR) is positive, signaling an improving trend in fundamentals. Regarding valuation, forward PE ratios in major markets show varying situations, with the S&P 500 PE already at elevated levels. In credit markets, both US HY spreads and US IG spreads are at historical lows, reflecting very loose market pricing for credit risk.

Policy

Against the backdrop of an extremely optimistic macro outlook, the policy environment and market liquidity are viewed as positive factors by investors, leading to high market positioning and risk-taking.

• Financial Conditions and Liquidity: The Goldman Sachs Financial Condition Indices indicate that financial conditions in the US, Euro area, Japan, and UK generally remain easy or neutral. Market liquidity conditions are considered positive by a net 61% of investors, the highest level since September 2021.
• Risk-Taking and Positioning: Investor risk-taking has significantly increased, with FMS investors currently taking Net 4% above normal risk, reversing the cautious stance of the previous month. A direct consequence of this optimism is the cash level plummeting to an all-time low of 3.3%.
• Biggest Risk and Crowded Trade: The extreme bullish positioning has triggered a contrarian warning from BofA, with the BofA Bull & Bear Indicator rising to 7.9, close to a "Sell Signal."
• Most Crowded Trade: "Long Magnificent 7" remains the most crowded trade for the 2nd consecutive month (54%).
• Biggest Tail Risk: The "AI bubble" holds the top position for the 3rd consecutive month (38%).
• Credit Concerns: Despite the soaring market sentiment, 40% of investors still believe that "PE/Private Credit" is the most likely source of a systemic credit event, although this percentage has decreased from the previous month.