The latest Bank of America monthly institutional investor survey, which was conducted between Aug. 3 and 9 among 243 investors with a total $735 billion under management, revealed that as stocks slumped around the globe, investors flocked to the US, which has become the world’s safe haven: allocations to U.S. stocks jumped 10% to a net 19% overweight, “the biggest overweight since January 2015 and the top equity region for the first time in 5 years.”
That makes America the most popular equity region for the first time in five years, Chief Investment Strategist Michael Hartnett said and added that “With investors telling us they are long the U.S., the Fed and cash, our view remains: peak profits, policy and returns.”
As investors flooded into the US, they fled from what they said was the “biggest tail risk” for the third month in a row, and 5 of the past 6: trade war…
… with Quantitative Tightening and China Slowdown in distant 2nd and 3rd position.
Adding to America’s allure, 67% of respondents said that the US profits outlook was the most favourable, a record 17-year high.
Some concerns remain, however, with 32% of investors seeing US growth decelerating.
Offsetting slowdown fears, however, was the ongoing lovefest with growth/tech in the form of FAANG+BAT stocks, which for the 6th consecutive month was seen as the “most crowded trade.”
It’s not just tech as stocks continue to rise in sectors beyond tech.
Meanwhile, the overall outlook is still bullish as the S&P500 continues to hold above 2,800 and more money available to buy stock, as the average cash balance among the investor community rises 0.3% to 5%, above the past 10 year average of = 4.5%.
According to Hartnett, “August rotation shows survey participants are buying banks and continue to flock to perceived safe havens like US equities and cash; they are selling commodity sectors and defensive sectors/regions like materials, energy and UK equities.”
And speaking of the UK, amid growing concerns of a No Brexit deal, allocation to UK equities saw the biggest one-month drop since May ’16, down 10ppt to net 28% underweight.
Looking ahead, Hartnett said that “rising corporate leverage concerns say bonds should outperform stocks, while a weaker profit outlook suggests defensives could outperform cyclicals.”
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