'Sell the vaccine': Big-money investors are the most bullish they've been since January 2018 — and Bank of America says that's a signal to get out

Reuters

  • Investor bullishness surged to its highest point since January 2018 as the US election outcome became clear and as drugmakers released encouraging news about vaccine progress, Bank of America strategists said Tuesday.
  • Fund managers’ allocations to stocks hit a net 46% overweight from November 6 to 12, closing in on the 50% threshold that indicates “extremely bullish” levels, according to the bank.
  • The recent rotation to value stocks can continue through the end of the year, the strategists said, but they recommended investors “sell the vaccine” as the market comes close to reaching “full bull.”
  • Visit Business Insider’s homepage for more stories.

November has brought a spate of good news for stock bulls, but Bank of America fears the market might now be too cheerful for its own good.

The bank’s latest fund-manager survey found that investor optimism surged this month to its highest point since January 2018. Managers’ allocations to stocks reached a net 46% overweight, inching closer to the 50% threshold that indicates sentiments are “extremely bullish,” Bank of America said on Tuesday.

The survey took place from November 6 to 12, as the US election outcome became clear and as Pfizer and BioNTech described encouraging progress on their coronavirus vaccine. Investors rotated into value stocks on November 9 at the fastest pace since 2008, and cash holdings fell below their pre-pandemic levels.

Rising exposure to riskier assets signals that investors are more convinced than ever that the US recovery is on track, but Bank of America’s strategists advised clients to avoid blindly entering a crowded trade.

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“Reopening rotation can continue in the fourth quarter but we say ‘sell the vaccine’ in coming weeks and months as we think we’re close to ‘full bull,'” the team led by Michael Hartnett wrote in the Tuesday note.

The survey’s timing meant it did not capture a similar — but smaller — value rotation seen on Monday after Moderna said its own vaccine was found to be highly effective at preventing COVID-19. The Dow Jones industrial average and the S&P 500 closed at record highs, and investors pushed further into the so-called reopening trade.

Despite last week’s shift from tech giants to small-caps, fund managers surveyed said they still viewed tech stocks as the most crowded trade by a massive margin. Month-over-month allocation shifts showed investors placed larger bets on small-caps, emerging-market assets, banks, and energy stocks. Positioning weakened in bonds, cash, and consumer-staples stocks, according to the bank.

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The coronavirus resurgence remained the biggest tail risk among the managers surveyed, followed by a potential tech bubble and civil unrest. Virus cases have reached record highs in the US and continue to increase. Several cities reinstated partial lockdown measures over the past week to curb community spread, reviving concerns of a double-dip recession.

Still, 91% of respondents said they expected the economy to grow stronger over the next year, and more investors said the economy was in the early stages of an expansionary cycle as opposed to mired in recession.

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