Big money managers are pouring money into the stock market even though a new investor survey shows a record number believe it has never been so overvalued.
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Cash holdings fell to 4.7 percent of assets in June as investors deployed money at the fastest pace since August 2009, when the economy was emerging from the financial crisis and accompanying recession.
Just two months earlier, in April, cash levels had reached 5.7 percent, according to Bank of America. That was the highest since the Sept. 11, 2001, terrorist attacks, reflecting investor worries as the economy ground to a halt from shelter-in-place orders intended to curb the spread of the COVID-19 pandemic.
The subsequent buying spree came despite a net 78 percent of respondents, the most since the survey began in 1998, believing stocks are overpriced.
The benchmark S&P 500 surged 34 percent off its March 23 low through the survey period.
While Wall Street money managers have moved past their peak levels of pessimism, their optimism is “fragile, neurotic, nowhere near dangerously bullish,” according to Michael Hartnett, chief investment strategist at Bank of America.
The Charlotte, N.C.-based lender surveyed 190 participants with $560 billion in assets under management between June 5 and June 11.
U.S. tech stocks, which are the "most crowded" trade since 2013, are the only "conviction" play on price gains identified in the survey, according to Hartnett.
Just 37 percent of respondents say a new bull market has begun while a majority 53 percent believe the stock market’s surge off the March 23 low is a “bear market rally.”
The biggest tail risks to stocks include a second wave of coronavirus infections (identified by 49 percent of survey participants), permanently high unemployment and a Democratic sweep in the 2020 election, respondents said.
Looking at the economy, 18 percent of respondents believe there will be a V-shaped recovery -- a sharp rebound without further declines -- while 64 percent expect the rebound to take the shape of a U, which would be slower, or a W, which would be choppier.
A net 46 percent of those surveyed fear a “prolonged recession,” down from 93 percent in April.
Sixty-eight percent of respondents believe COVID-19 will bring more components of supply chains back to the U.S. from overseas while 48 percent see increased protectionism and 43 percent forecast higher taxes.