Investors need to be 'on their toes' in 2018: WFC
According to a new report from Wells Fargo’s (NYSE:WFC) Investment Institute, stock market volatility will increase in 2018, with the S&P 500 showing little net movement between now and the end of next year unless some time of corporate tax legislation is signed into law.
This note comes as a survey conducted by Bank of America Merrill Lynch noted that a large amount of investors believe the stocks are overvalued, but they are still doubling down on risk.
According to BAML, a record net 48% of investors say stocks are overvalued, while cash balances continue to fall, slipping to 4.4% of assets, the lowest level in more than four years. That’s only slightly below the 10-year average of 4.5%, as reported by Reuters, citing the BAML survey.
BAML called this trend of overvaluation concerns and shrinking cash balances “irrational exuberance.”
“Measures of global risk appetite increased noticeably this month with cash allocations much lower, equity weightings up and increased exposure to risk,” added BAML.
The bank predicts more gains for the stock market in 2018.
Beyond tax reform, Wells Fargo believes stock market volatility will increase in 2018 as the Federal Reserve continues with interest rate hikes while economic growth remains modest. “In 2018, we will need to be on our toes and ready to act,” the bank added, noting that for most of the past eight years, investors could put their domestic equity exposure on cruise control.