Investor optimism has seen its biggest jump in more than four years, with many increasing their equity allocations while shrinking cash holdings to levels prompting a sell signal for the equity market, according to the latest global survey by the Bank of America for Fund Managers (FMS).
The wave of optimism is being fueled by factors such as U.S. Federal Reserve rate cuts, China’s stimulus and the possibility of a soft landing, BofA strategists said in a report on Tuesday.
The survey revealed that liquidity levels among fund managers fell to 3.9% from 4.2%, prompting a sell signal for the MSCI All-Country World Equity Index.
“The freeze is increasing, but BofA’s Bull & Bear index rose to 7.1, not yet the big ‘sell signal’ level of 8.0,” the report said.
Equity allocations have soared, marking the biggest increase since June 2020, with investors now net 31% overinvested in equities. Meanwhile, bond allocations fell to a record low, with investors shifting to a 15% net underinvestment weighting from 11% overinvestment last month.
According to the BofA survey, emerging market stocks and commodities were the biggest gainers from China’s stimulus efforts, while Japanese stocks and government bonds were the biggest losers.
The survey shows that the top three tail risks highlighted by investors were geopolitics (33%), inflation (26%) and a potential US recession (19%). It also found that the most “busy trades” were long positions in the Magnificent 7 (43%), gold (17%) and Chinese stocks (14%).
About a third of respondents plan to increase hedges ahead of the US election, while many expect an election sweep to drive bond yields and the dollar higher, while the S&P 500 could face pressure.
Trade policy is seen as the area most likely to be affected by the election outcome, followed by geopolitics and taxation.
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Reference;
Karaahmetovic, V. (2024) BofA’s indicator issues a sell signal for equity markets By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/bofas-indicator-issues-a-sell-signal-for-equity-markets-3663077 (Accessed: 15 October 2024).
