A Record Number Of Market Participants Says The Market Is Overvalued, Surpassing 1999 Bubble Highs

The latest monthly Fund Managers (FMS) survey from Bank of America is out, and continuing the trend noted in previous months when the number of active managers who said that stocks are overvalued hit the highest in nearly two decades, the latest version reveals that the number of respondents saying that equities are overvalued has just hit a record high, surpassing the all time high set during the 1999 bubble. As shown in the chart below, 44% of fund managers now say equities are overvalued, the highest response on record, and up from 37% in May.

Meanwhile, "excess valuation" concern coincide with high global profit expectations - just like prior to the 2000 recession - "shows that market vulnerability to profit weakness is very high" according to BofA.

Not surprisingly, 84% of investors think US is the most overvalued region, a new all-time high, while a net 18% think European equities are undervalued and a net 48% of investors think EM equities remain undervalued.

Meanwhile, even as the market rose to record highs, FMS cash "on the sidelines" rose from 4.9% to 5.0% in May according to BofA, which is well above the average cash level over the past decade of 4.5%. avg.

BofA suggest that while ominous on the surface, and in contrast to the 1999 bubble, the record June FMS views of "excess valuation" does not coincide with a fall in cash levels, which to BofA's Michael Hartnett suggests there is no irrational exuberance. Then again, this time the exuberance appears to be manifesting itself via passive investing and ETFs, as well as vol bets, so it is unclear if such comparisons are appropriate.

Asked for their opinion on internet stocks, 75% said internet stocks expensive or in bubble, with 57% of investors saying "expensive", 18% "bubble-like", 15% "fair", 1% say "cheap.

Related to this, respondents said that the #1 "crowded trade" in June is long Nasdaq, even more so than in May, jumping from 26% to 38%, while #2 is long EU equities, and #3 long US/EU corporate bonds.

The monthly evolution of the "most crowded trade" according to the market is shown below:

Asked what they see is the biggest tail rise, active managers responded "China Credit Tightening" the second month in a row, with crash in global bond markets second (18%); followed by delay in U.S. corporate tax reforms (14%)

This is how the "biggest tail risk" has evolved over time:

64% say 10-year Treasury yields of 3.5%-4.0% needed for an equity bear market

More ominously, when asked about global growth expectations, only 39% macro momentum has peaked; vs vs 62% in January, "so June FMS sees defensive rotation to staples, utilities + largest drop since Jun'10 in allocation to commodities."

And related to that, "contrarian bond bulls" are on the rise, with just 9% of FMS respondents forecast lower/flat bond yields last Dec, now 20% do. At the same time, inflation expectations have also continued to fall, to 60% from 75% in April, suggesting the global economy has indeed peaked as UBS showed yesterday.

Finally, in another notable inflection point, while those expecting a "goldilocks" outcome has risen to a new record highs at 38%, those expecting "secular stagnation" has also risen to 46%, from 41% in May, confirming just how split the outlook on the economy the market remains.


asteroids Tue, 06/13/2017 - 10:16 Permalink

The "market" is a handful of computers ping ponging the market upwards. Bears died off a long time ago and J Q Public is no longer a player. So, there's no one to fleece on the way down, so I don't think it'll happen. Waiting for the Matrix to reboot itself.

unplugged asteroids Tue, 06/13/2017 - 10:28 Permalink

someone has to "place the bets"so there will be "someone to fleece"for every winner, there's a loserin this case the losers are the holders of US dollars since the losses are "made up" by printing more dollars hence diluting its worthso those getting fleeced are the bagholders of US Dollars on the day that nobody will accept their bag in exchange for somethinguntil that day arrives that bag is a hot potato, a ticking time bomb, a bag full of hot dog shit, etc...

In reply to by asteroids

William Dorritt asteroids Tue, 06/13/2017 - 10:32 Permalink

MARKET VALUATION = LABOR COST OF ZERO To support the Market values 100% of the non Wall Street Jobs have to be exported to Slave Labor Countries and any job that can't be exported like Janitor, Nanny, Housekeeper or lawn boy must be filled by illegals and H1b workers to drive the cost of Labor to zero. Once the the LABOR COST target of ZERO is achieve for all non-important workers aka not Wall Street, the valuations will be based on profits growth....... Wait.........we already did this.......which is why we elected TRUMP to undo it.......

In reply to by asteroids

unplugged Tue, 06/13/2017 - 10:22 Permalink

so then, "the herd" says its overvaluedso then everyone is on the "its overvalued" bandwagonwouldn't that make the contrarian view that its "undervalued" ?hmmm ?

William Dorritt Tue, 06/13/2017 - 10:27 Permalink

Pump and Dump?Too many Dollars chasing too Few Investments.At least 50% of the Dollars are probably leveraged.Trump should focus on Small Business (where the jobs are), and mining and trade deals,or repealing trade deals and stay away from cheer leading the bloated Markets, it's a mistake.Same goes for Trump Jr, don't cheer lead Wall Street,Ivy League and Wall Street are the problem not the solution.

actionjacksonbrownie Tue, 06/13/2017 - 10:32 Permalink

So why didn't he circle 2008??? The crowd didn't see it coming then, because the crowd is usually wrong. Until ALL the CB's announce the money printing is stopping, and interest rates are going to rise substantially, this show WILL go on, regardless of what market participants "see". The winning strategy for the last  6 years has been to sell Gold/Silver, and leverage into the Markets. I don't see that winning streak coming to an end any time soon.

The Real Tony Tue, 06/13/2017 - 10:38 Permalink

The Russian stock market and the Venture Exchange up in Canada are the only two markets in the world that aren't overvalued. There's no surer way to lose all your money than to put it into U.S. stocks today. We should see the crash of all crashes followed by about twice the length of the 1966 to 1982 era or 32 years of sideways action after the greatest stock market crash in history.

Liberty4Sum Tue, 06/13/2017 - 10:46 Permalink

I agree in part with the above posts. But keep wondering, if so many are convinced the market is overvalued, when will Janet Yellen look at these surveys and invest accordingly with our money.

Liberty4Sum Tue, 06/13/2017 - 10:40 Permalink

When the Bank of International settlements tells the CBs to sell sell sell that'll be the beginning of the end of this party.

But on the lighter side I've been reading ZH for years and this is my first post. You guys and your sarcasm have kept me entertained for all this time so I thank you all. Even the spammers and your promises of $7000 a day, thank you for your contributions.

Joe Cool Tue, 06/13/2017 - 10:55 Permalink

The more people call a top, the higher it goes...You can't stop computer entries and pressing the return button...The Dow will go much higher...The digits may not be worth much...

Joe Cool Tue, 06/13/2017 - 10:55 Permalink

The more people call a top, the higher it goes...You can't stop computer entries and pressing the return button...The Dow will go much higher...The digits may not be worth much...

Md4 Tue, 06/13/2017 - 11:24 Permalink

"...the latest version reveals that the number of respondents saying that equities are overvalued has just hit a record high, surpassing the all time high set during the 1999 bubble."

We all know this.

Yet, it continues...

If Wall Street were the only ones that suffered when it crashes, it would be at least a little justice. Most Americans aren't greedy to the point of warping a market into a racket. That is, unless they are involved in bubbled 401k portfolios and that other way-overvalued racket of shack speculation and flipping.

Of course, we know that's never true.

When greed and insanity outweigh real fundamentals driving value, it's Main Street that gets it.

The long term effects of outsourcing a real economy, and supplanting it with a fake one, continues...

Deep Snorkeler Tue, 06/13/2017 - 11:28 Permalink

In 2009, the political-economywas our torturer.Today, it is our savior.  Thus we love our nationall the more.I submit to crazed impulsesto buy houses, stocks, carsand Ivanka bags.Anything goes, nothing mattersin the New Trumplandia.Keep the party going.