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Fifty-two percent of fund managers surveyed by Bank of America said that's the top tail risk to the current rally in U.S. equities, which climbed 31 percent from a March 23 trough through Tuesday. Permanently high unemployment, cited by 15 percent of respondents, and a break-up of the Eurozone, cited by 11 percent, rounded out the top three biggest tail risks.
A vaccine breakthrough is the “most likely V-recovery catalyst,” wrote Michael Hartnett, chief investment strategist at Bank of America, referring to a development that might drive a sharp, rapid rebound.
A so-called V-shaped recovery, as shown on a price chart, is a best-case scenario for markets; those with a U-shaped curve take longer to flatten as well as to begin climbing, while W-shapes include two sharp downturns rather than just one.
The Charlotte, North Carolina-based lender surveyed 194 participants with $591 billion in assets under management between May 7 and May 14.
Just 10 percent of respondents expect a V-shaped recovery and 25 percent see the beginning of a new bull market. In contrast, 75 percent of those surveyed think stocks will see a U- or W-shaped recovery and 68 percent believe the major averages are in the midst of a bear-market rally.
As skepticism over the current rally prevailed, fund managers' cash holdings remained elevated at 5.7 percent, but off April’s nearly two-decade high of 5.9 percent. Cash holdings were well above their 10-year average of 4.7 percent, and remained a contrarian buy signal, Bank of America said.
Long U.S. technology and growth stocks were deemed the “most crowded” trade by 60 percent of respondents, followed by long cash (14 percent) and long gold (10 percent), the survey found. Long trades are essentially bets that an asset's value will increase over time.
As of May 8, Amazon, Alphabet, Apple, Facebook and Netflix made up 21 percent of the S&P 500, according to the investment bank Goldman Sachs.