Stock bulls need breather as COVID-19 vaccine rolls out
Cash levels hit a 'sell signal': Bank of America
Big-money investors bullish on a COVID-19 vaccine and the reopening of the economy should temper their excitement, warn strategists at Bank of America.
Anticipation of an acceleration in the economy caused investors to last month pour money into the market, reducing their cash levels to 4% while triggering a “sell signal.” It was the first time since May 2013 that asset allocators were underweight cash.
The firm’s Bull & Bear Indicator, which is a buy signal below 2 and a sell signal above 8, was ticked up to a neutral 6.7.
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“We say sell the vaccine,” wrote Michael Hartnett, chief investment strategist at Bank of America.
The Charlotte-based lender surveyed 190 participants with $534 billion in assets under management between Dec. 4 and Dec. 10.
Eighty-nine percent of those surveyed expect stronger growth next year, with 70% saying a vaccine will have a positive economic impact during the first half of 2021. Expectations of a U- or V-shaped recovery rose to a combined 55%, up from 47%, while the percentage of respondents anticipating a W-shaped rebound fell to 34% from 39%.
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At the same time, optimism on the economy has a record net 76% of those surveyed expecting the yield curve to steepen. The spread between the 2- and 10-year yields was 77 basis points on Tuesday, near the highest level since October 2017.
A brighter economic outlook caused investors to put money to work in value stocks and emerging markets while rotating out of the U.S. and cash.
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Long technology was viewed as the “most crowded” trade by 52% of investors, followed by short the U.S. dollar and long bitcoin.
COVID-19 remained the biggest “tail risk,” but the percentage of respondents who remained most concerned about the virus fell 11 percentage points to 30%. Inflation and a fiscal policy drag were the next biggest “tail risk” concerns, and both were not on last month’s list of worries.