Investors were bullish but not euphoric coming into the new year, according to the January fund manager survey from Bank of America Global Research.
“We stay irrationally bullish risk assets until peak positioning and peak liquidity incite a spike in global bond yields and ‘the big short’ opportunity,” Michael Hartnett, chief investment strategist, said in a statement.
The survey was conducted Jan. 9–16 among 249 panelists with $739 billion in assets under management.
Investors’ allocation to global equities in January increased one percentage point to net 32% overweight from net 12% underweight in August, the biggest uptick in equity positioning since 2011. Nevertheless, the allocation is still below the net 50% overweight level that characterized previous market tops, BofA said.
Fund managers continued to see upside for U.S. equities, expecting the S&P 500 to peak at 3,400, up from a predicted 3022 in December 2018 and the highest since BofA first posed the question in June that year.
Asked in the January survey “When do you expect equity markets to peak?” investors said the third quarter of 2020.
Fund managers’ January cash levels stayed at 4.2% for the third consecutive month, the lowest level since March 2013, leaving the fund manager cash rule in “neutral” territory.
The cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5%, a contrarian sell signal is generated.
Allocation to cash fell two points in January to net 16% overweight, the lowest cash allocation since November 2015.
In January, investors increased their allocation to commodities by four points to net 10% overweight, the highest level in nearly eight years.