Investors are saying, “Stocks Are Too Expensive”
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)|
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