Another month, another paradox emerges in the latest Bank of America Fund Managers Survey, which on one hand reveals that a record number, or 46%, of Wall Street respondents say stocks are "overvalued"... ... even as the number of investors expecting a "Goldilocks" economic scenario of above-trend growth and below-trend inflation, hit a record high ...
Tyler Durden considers the following as important: Bank of America, Bear Market, Bond, Business, China, Economy, European Central Bank, eurozone, Finance, financial markets, Financial risk management, flash, Goldilocks, Howard Marks, investment, investment management, money, NASDAQ, North Korea, Recession, Short, US Federal Reserve
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Another month, another paradox emerges in the latest Bank of America Fund Managers Survey, which on one hand reveals that a record number, or 46%, of Wall Street respondents say stocks are "overvalued"...
... even as the number of investors expecting a "Goldilocks" economic scenario of above-trend growth and below-trend inflation, hit a record high 42%...
... and are positioning "pro-risk, with cash allocation unchanged at 4.9%.
Adding to the paradox, while investors are largely confident that stocks are the most overvalued on record, few expect a crash, and 36% responded that they have not bought equity hedges in August, up 1% from July.
Elswhere, for the 4th straight month, most fund managers responded that "Long Nasdaq" is the most crowded trade, followed ironically by "Short Dollar", a dramatic inversion from just a few months ago when long USD was considered one of the most crowded trades.
Asked what they see as the top "tail risk", most investors, or 22% of total, responded a Fed/ECB policy mistake.
This was followed by 19% who said a crash in bond markets and a new entry in the third spot, with 19% responding North Korea. Curiously, following the Howard Marks memo, fears about an ETF/quant driven liquidity flash crash have doubled to over 10%.
In a new question, 43% of respondents said that low inflation is structural, while 35% said cyclical and 21% said temporary.
Asked what would surprise them the most, a whopping net 49% said recession, while virtually nobody would be surprised by an equity bear market (-8%), inflation (-8%) and an equity bubble (-28%).
BofA also notes that "Anglo-Saxon political angst" reflected in lowest allocation to US stocks since Jan'08 and to UK stocks since Nov'08; in contrast EM & Eurozone remain consensus longs, while expectations of China 3-year GDP estimates rose up to 5.8%, highest since Apr'16.
Some other observations: the top sector overweight is banks (record high), followed by tech (though contrarians note tech allocation fell to 3-year low); energy allocation drops to 14-month low; allocation to staples/telecom/utilities ("defensives") still low, but starting to pick up.
Finally, BofA points out an "ominous inflection point" in the profit expectations indicator (58% in Jan, now 33%) - the profit outlook correlates with PMIs, equities vs bonds, HY vs IG bonds, cyclical vs defensive sectors; As Bank of America notes, any "further deterioration likely to cause risk-off trades."