Investors are saying, “Stocks Are Too Expensive”

Investors are saying, “Stocks Are Too Expensive”

Investors are saying, “Stocks Are Too Expensive”

$DIA, $SPY, $QQQ, $VXX

Caution Signals Blinking

Many professional investors (46%) saying stock markets are overvalued, Bank of America Merrill Lynch’s monthly fund manager poll showed Tuesday.

The survey, which polled 202 asset managers with $587-B under management, was carried out between 4-10 August, and showed cash levels high at 4.9%, and the allocation to equities fell to a net 36% overweight.

European investors’ cash weighting rose to 5.3%, the highest reading since March 2003.

A net 33% of investors saying corporate profits would improve over the next 12 months, down 25% from January to the lowest level since November 2015.

The bank suggested this was a warning sign for equities over bonds, high yield over investment grade and cyclical sectors over defensive ones.

“Further deterioration is likely to cause risk-off trades,” said BAML’s chief investment strategist.

Expectations for faster global growth also fell to 35% in August, down from 62% in January, and the outlook for corporate operating margins stalled.

However, the percentage of investors expecting a ‘Goldilocks’ scenario of above-trend growth and below-trend inflation rose 6% to 42%, a record high.

This could be linked to the fact that US inflation has remained subdued.

US stocks remained out of favor, with the allocation falling to a net 22% underweight, the largest underweight since January 2008. The relative US equity positioning Vs the rest of the world was also the lowest since April 2007.

The tech-heavy NAS Comp was seen as the “most crowded” trade for a 4th month running, nominated by 31% of poll respondents.

“Cash and overvaluation fears aside, fund manager survey positioning remains broadly pro-risk, pro-cyclical,” BAML said.

Some 22% of respondents said the biggest tail risk remained a policy mistake by the Fed or the ECB.

Tuesday, the major US stock market indexes finished at: DJIA +5.28 at 21998.99, NAS Comp -7.22 at 6332.99, S&P 500  -1.23 at 2464.57

Volume: Trade on the NYSE came in light at 700-M/shares exchanging hands.

  • NAS Comp +17.7% YTD
  • DJIA +11.3% YTD
  • S&P 500 +10.1% YTD
  • Russell 2000 +1.9% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.49) Very Bullish (0.53) Bullish (0.48) Bullish (0.46)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (0.17) Neutral (0.18) Bullish (0.38) Neutral (-0.04)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.41) Neutral (0.20) Bullish (0.48) Very Bullish (0.54)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.30) Neutral (-0.05) Bearish (-0.27) Very Bearish (-0.58)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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