Bank of America advises selling short-term amid market euphoria
Market’ optimism about economic growth is at 20-year highs
The discovery of a highly effective coronavirus vaccine, according to preliminary trials announced by Pfizer and Moderna, has placed market growth expectations at 20-year highs, according to the November survey of fund managers. carried out by Bank of America. And in the face of such optimism, which is reflected in the strong stock rises in recent days, the US bank advises to sell in the coming weeks or months, in the conviction that the market is very close to being at a fully bullish point.
One of the signs that Bank of America highlights as a turning point for the market is liquidity, which has fallen in November to 4.1% from 4.4% in October and is now at levels prior to the outbreak of the pandemic . The liquidity position of the managers was at 4.2% in the month of January and below 4%, representing a sell signal, according to Bank of America.
The survey among managers reveals that Covid-19 continues to be the main concern but investors have advanced in time their forecast of when a “credible vaccine” would be available, a moment that they now anticipate in January 2021, instead of February predicted in the October survey.
Despite the nearness of the selling wave pointed out by Bank of America, investors’ macroeconomic expectations are fully bullish. Optimism about global growth and earnings is at 20-year highs and a large majority, 66%, believe that the economy is in the early phase of the business cycle, not in the face of a recession. Asset allocation in equities is also at the highest level since January 2018 and close to an “extremely bullish” level.
The November survey of managers also reveals how, following the vaccine announcements, there has been a shift of assets to emerging markets, small caps and banks and a lower allocation to liquidity and bonds. The cyclical assets of the markets of Japan, the euro zone and the United Kingdom are capitalizing on this rotation. And the favorite positions heading into 201 are to go long in emerging markets, the S&P index and oil, without the technology having lost its luster. It continues to be the majority bullish position.
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