Stocktake: Fund managers remain cautious about stocks

Stocks may be flying high but professional investors remain in bearish mood, according to Bank of America’s latest monthly fund manager survey.

Some concerns have abated. Profit expectations, for instance, are the least pessimistic since February 2022. Fund managers increasingly see a soft economic landing, with expectations for a hard landing “fading”. However, the overall mood is one of continuing caution.

Cash allocations, while no longer “uber-high”, have risen from 5.1 to 5.3 per cent over the last month and are well above historical norms. A large majority are taking lower-than-normal risk levels.

Global equity allocations have risen over the last month, but most investors remain underweight stocks, with allocations 1.8 standard deviations below normal levels.

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Overall a broad measure of sentiment tracked by Bank of America that is based on cash positions, equity allocation and economic growth expectations shows sentiment is still “stubbornly low”. Bank of America’s monthly survey is a contrarian indicator: excessively bullish sentiment is bearish for stocks, and vice-versa.

Right now sentiment remains decidedly cautious, suggesting stocks are in a position to continue climbing the proverbial wall of worry.