(Bloomberg) -- A firming outlook for global growth and bullish profit expectations will keep the bull run in stocks on an even keel this year, suggesting the rally won’t peak until 2019 or beyond, according to a Bank of America Corp. survey of fund managers.
A poll of investors overseeing $526 billion conducted Jan. 5-11 show a majority pushed back the timing for a market top by two quarters from a December survey, when they expected an inflection point in the second quarter of 2018.
Fund managers have been making use of dry powder to chase performance in high-flying assets at the start of 2018, according to the survey. Cash balances dropped to a five-year low of 4.4 percent in January, down from 4.7 percent the previous month.
The survey is further evidence that investors are overlooking rising inflation and the prospect of central-bank policy mistakes to double down on the second-longest U.S. stock rally on record. The net percentage who say they have taken protection against a sharp fall in equity markets in the next three months has dropped to the lowest in at least four years.
“Party like it’s 2019,” Bank of America investment strategists led by Michael Hartnett wrote in a note. “Bottom line: January fund-manager asset allocation reflects ‘buy the first rate hike, sell the last rate hike’ playbook.”
Investor allocation to stocks is 1.1 standard-deviation points above its long-term average, while net hedge-fund exposure has jumped 9 percentage points to 49 percent, the highest since 2006. “Short volatility” is now the most crowded trade, overtaking “long bitcoin” and “long FAANG+BAT” for the first time.
"Inflation and bond crash replaces a policy mistake by the Fed or ECB as the top tail risk for 2018," the strategists conclude.
©2018 Bloomberg L.P.
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