Goldman Sachs personal financial management head Joe Duran on his outlook for the markets.
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.
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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.
