Bank Of America Says This Is The Only Reason To Be Bearish On The Market Now

Exuberance is running wild in the market and a Bank of America survey of fund managers found that optimism on risk assets has risen to the highest level in a decade. Here’s why investors may want to be cautious.

Bank of America (NYSE: BAC) was out with a widely watched survey this week.

Its Bank of America Global Fund Manager Survey is one of the longest-running and widely followed polls of Wall Street investors.

The survey of 225 mutual fund, hedge fund, and pension fund clients with $645 billion under management combined found that investors are in the throes of an unprecedented frenzy of risk-taking, with alarm bells sounding that greed has taken over the market.

This comes after a week that saw the strongest-ever recorded inflow into stocks, with a record net 25% of investors surveyed saying that they are now taking higher-than-normal risks. What’s more, a record percentage of money managers said they believe global growth is at an all-time high.

Along that same line, cash levels have slid to the lowest level since 2013, while optimism on cyclical risk assets has risen to the highest level since 2011.

And the optimism is rampant. 84% of fund managers surveyed said they expect global corporate profits to improve over the next 12 months, and for the first time in a year, investors say companies should focus on spending rather than improving their balance sheets.

But Bank of America warned that the shift in sentiment should raise eyebrows for contrarians watching for signs of extreme optimism to market a turning point for the market.

“The only reason to be bearish is… there is no reason to be bearish,” Bank of America chief investment strategist Michael Hartnett said in a note to clients. 

The major indexes are all near their record highs. The S&P 500 is inching closer to 4,000, the Dow is up 4.2% so far this year, and the Nasdaq surged above 14,000 for the first time last week. 

Stocks are being pushed up as investors bet on a successful rollout of the COVID-19 vaccines, economic reopening, and expectations for more fiscal stimulus, with Congress working to pass the Biden Administration’s proposed $1.9 trillion relief package.

A JPMorgan gauge of cross-asset complacency—including valuations, positioning, and price momentum—has hit its highest level in two decades, but even still, Bank of America’s clients aren’t concerned about the market’s exuberance. Only 13% of respondents say that U.S. stocks are in a bubble, while 53% say we’re in a late-stage bull market.

The respondents said potential risks to the market include the rollout of COVID-19 vaccines, inflation, crowded trades in tech, long bitcoin trades, and shorting the dollar trades. A bond “tantrum” was cited as the second tail risk after the vaccine rollout, with bond allocations dropping 3 percentage points to 62% underweight – the lowest since March 2018.