It took unprecedented stimulus and a rally that’s pushed equities near record highs, but fund managers overseeing $489 billion finally believe that this stock market recovery has legs.
Among investors surveyed by Bank of America in the week through Aug. 13, 46% described equities as being in a bull market, up from 40% in July. The share of skeptics who say it’s a “bear market rally” has dropped to 35% from 47% a month earlier. There are more signs of optimism: 79% of investors expect a stronger economy, the most upbeat result since December 2009, while 57% are betting on higher profits.
The survey comes at a crucial time for equity market investors as the S&P 500 flirts with record-high levels and many participants mull whether it’s time to take profits or push for more returns. BofA strategists said that while this is the most bullish monthly fund manager survey since February, it’s not yet a red flag.
“We do not think positioning is dangerously bullish,” said strategists led by Michael Hartnett. September is expected to bring market volatility amid concerns that U.S. stimulus has peaked, but a “disorderly drop” in credit and stocks would require a “disorderly” increase in rates, according to BofA.
On top of the powerful stimulus measures, expectations of a Covid-19 vaccine have added to forces driving equities higher in recent weeks. The latest BofA survey shows that fund managers expect a vaccine announcement to happen early in the first quarter of 2021.
To be sure, not all investor expectations are rosy. Only 17% forecast a quick, V-shaped economic bounce, compared with 37% who expect a W-shaped recovery that will come in stages.
The August survey also showed a rotation toward euro-area and emerging-market equities compared with July. The euro-area is now the most popular equity region among the poll’s respondents, with their allocation increasing 17 percentage points to a 33% overweight, the highest since May 2018. In contrast, the exposure to U.S. stocks declined 5 percentage points to net 16% overweight.
Other survey highlights include:
- Cash allocation fell 6 percentage points to net 26% overweight versus July
- Net 57% of polled investors want companies to improve balance sheets instead of expanding capex
- Investors see an equal-weighted portfolio of equities, bonds and gold as the most overvalued since 2008
- Net 31% believe gold is overvalued compared with 0% in July, the highest level since 2011
- Top tail risk is a second wave of Covid-19, followed by a U.S.-China trade war and the U.S. election
- U.K. stocks remain the top regional underweight
— With assistance from William Canny.
