Record Number Of Fund Managers Say "Stocks Are Overvalued" As They Rush To Buy Nasdaq

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."


Decoy 409 Tue, 08/15/2017 - 09:53 Permalink

Magical Credit Chips Known As 'Sound Money':I am still getting a kick as to how many are still on the ingnorant side. Ignorant adults in belief that the so called credit chips known as money is sound.Remember that old game 'Pole Position' where you drive the race car to get pole position by laps 'credited'. Well it was a fun game as the more credits you got the better start position as well as more time. The game had a deep flaw however,that was when the plug was pulled it reset itself to 'O'.Wonder how many grew up in homes where the parents handed them the entire book of checks and told them to get lost for the day and write out and buy as much as you want,as there are no consequences to overcreation of 'Debt Credit'.

Blue Dog Tue, 08/15/2017 - 10:36 Permalink

The North Korean sitiuation is cooling off. It's one reason why the cryptos are down so much. There were record amounts of money going into them. Still, when Bitcoin is down only 10% compared to yesterday it's hard to call it a crash.

Give Me Some Truth Tue, 08/15/2017 - 10:41 Permalink

NOTED:Declines (plunges really) of silver price on "news" that that North Korea threat has been "reduced" (spefically regarding the country's plan to nuke Guam) are much GREATER than the price increases were when the opposite news was trumpeted.I mention this only because I know no one is the mainstream financial press will.Conclusions: Any "nuke fear" gains will be more than offset by "fear dwindling" stories. Manipulation during peak "nuke fear" news cycles must be ramped up to keep any price gains from becoming too extreme. But "nuke fears declining" news cycles can be exploited for major and quick price declines.My comment: One must make their own investment decisions, but I DO think one can "trade" on this reality, now and in the future.  

Rebelrebel7 (not verified) Tue, 08/15/2017 - 11:44 Permalink

Nobody will cut the bankers a break. No new war so far, no civil war so far, no stock market crash so far, no bond market crash so far, no real estate crash so far. They promised that all of those tjings would happen. How is anyone  supposed to make easy money in this scenario?! 

runnymede Tue, 08/15/2017 - 20:08 Permalink

Is there one thinking person in a position of power anywhere on God's green earth?At least we've got the plunge protection team in place. Otherwise we might be a spot someday. The only thing I'm long is human gullibility.  Going full retard is the one constant.