The market is currently the most bullish it has been so far this year, fueled by the US election outcome and positive development on vaccines for COVID-19. The bull-run has prompted a call from Bank of America Corp. (BofA) strategists to start selling risk assets.
According to a Bloomberg report, a monthly survey conducted by BofA between 6 November and 12 November saw investor optimism on stocks skyrocket, with allocation jumping to the highest level since January 2018. Cash holdings plunged to the lowest level since April 2015, while economic growth expectations surged to a 20-year high.
Investors chose to purchase more volatile assets, such as small-caps, value, banks and emerging-market stocks, shifting away from bonds and staples.
The optimism in global markets, that was also mirrored in India, caused benchmark indices including S&P 500, Sensex and Nifty 50 to hit record highs even this week. BofA said that fund managers are now in a dilemma on whether it's worth taking profit or staying invested for potentially even more returns.
"Reopening rotation can continue in the fourth quarter but we say 'sell the vaccine' in coming weeks or months as we think we're close to 'full bull,'" said BofA strategists led by Michael Hartnett in a Tuesday note, as quoted in a Bloomberg report. The note further said that allocations to equities in November rose to net 46 percent overweight, close to "extreme bullish".
Among surveyed investors, 91 percent expect the economy to be stronger in the next 12 months, and 66 percent believe that global growth is in an early-cycle phase as opposed to a recession. Fund managers also haven't been this optimistic in their global profit expectations since 2002.
While COVID-19's second wave remains the biggest risk, fund managers surveyed by BofA expect a credible virus vaccine to be announced by mid-January 2021, compared to last month's bets on mid-February. A total of 190 money managers took part in the global BofA survey.