BofA Poll Projects 4% Gain in S&P 500 as Bull Market’s Peak

(Bloomberg) -- Investors are embracing risk assets, cutting cash levels to a six-year low, but according to the latest Bank of America Corp. survey, there isn’t much steam left in the stock market rally.

Profit growth expectations have turned positive for the first time since August 2018 and most fund managers don’t anticipate a recession in 2020, according to the December poll. However, investors see the S&P 500 Index’s bull run peaking at 3,322 -- an upside of just 4.1% compared with Monday’s close.

The monthly survey is in line with a growing number of strategists and investors, who recommend sticking with risk assets into 2020 but warn that returns will be far more limited compared to 2019. Both U.S. and European stock markets reached record highs this week, supported by progress on a U.S.-China trade deal and diminishing political risks following Boris Johnson’s U.K. election victory.

The allocation to euro-area equities jumped, with 24% of investors saying they’re overweight in the region’s stocks, which is the highest proportion since May 2018. Fund managers have also been reducing their underweight position in U.K. equities.

In another sign of optimism, about two-thirds of surveyed investors said companies are under-investing in their businesses, with about half of fund managers wanting them to boost capital expenditure.

Investor expectations for a rise in inflation have jumped to a 13-month high, with about half of them expecting a steeper yield curve. However, bond yields have room to rally further before the sell-off in fixed income threatens risk assets, according to the poll. U.S. 10-year Treasury yields can rise an extra 85 basis points to 2.71% before causing losses and volatility in equities, the BofA survey shows.

U.S. tech and growth stocks remain popular among global investors, topping the list of the most-crowded trades, and followed by a long position in U.S. Treasuries.

A trade war remains at the top of investors’ minds as the survey’s biggest tail risk, followed by the outcome of next year’s U.S. election and the threat of the bond bubble bursting.

The survey was conducted between Dec. 6 and Dec. 12, with 199 investors managing $627 billion in assets participating in the global poll.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Paul Jarvis

©2019 Bloomberg L.P.