- REUTERS/Brendan McDermid
Investors who think stocks and bonds are overvalued are in a record majority compared with those who think they’re not, according to Bank of America Merrill Lynch.
On Tuesday, the bank published results of its Global Fund Manager Survey. On net, 54% of respondents said the combined valuation of both asset classes is close to an all-time high.
The overvaluation of stocks is the highest since May 2000, the survey found. The tech-heavy Nasdaq lost nearly 78% of its value between March 2000 and October 2002 as the tech bubble burst.
“Investors see an unambiguous vulnerability to ‘bond shock’ among risk assets, with the most crowded negative interest trades and EM equities susceptible should the Fed and especially the [Bank of Japan] fail to reduce bond volatility in September,” said Michael Hartnett, BAML’s chief investment strategist.
Several people, including Federal Reserve Board Chair Janet Yellen and Goldman Sachs’ Chief US Equity Strategist David Kostin, warned about stock valuations as the market continued to rise to all-time highs amid lukewarm earnings growth. In a client note on Sunday, Kostin said the S&P 500 trades at the 84th percentile of historical valuation, while the median stock is at the 98th percentile.
And investors drove up the value of US bonds as they were faced with fewer alternatives that would offer a steady, positive return in a period of economic uncertainty.
In BAML’s survey, 83% of respondents said the Bank of Japan and European Central Bank would maintain negative interest rates for the next 12 months, and 82% said they thought bond prices in developed markets are frothy. Also, the majority of people said they thought Treasurys would be the biggest driver of stock prices over the next six months.
- Bank of America Merrill Lynch