Investor sentiment hasn’t been this bullish in two years as the tech-led rally pushed stocks to consecutive record highs, but that optimism could spell trouble down the road for markets, according to Bank of America investment strategist Michael Hartnett. The February BofA Global Fund Manager Survey (FMS) showed that allocation to U.S. stocks hit the highest level since Nov. 2021, and allocations to the tech sector were the most aggressive since August 2020. Meanwhile, investors have cut their cash levels to 4.2% from 4.8%, the survey said. “Most bullish FMS in 2 years … investors go all-in on U.S. tech,” Hartnett wrote in a note to clients. “Investor positioning [is] increasingly a headwind for risk assets.” The stock market rallied to start the year with the S & P 500 rising more than 5% to all-time highs. However, the momentum lately eased as hopes for rate cuts pulled back. Tuesday’s hotter-than-expected inflation data also triggered a sell-off in stocks. For the first time since April 2022, investors became confident enough to predict that the U.S. economy would skirt a recession, the BofA survey showed. Two thirds of the survey respondents see a soft landing this year. The bank’s widely-followed “Bull & Bear” indicator is moving closer to flash a “sell” signal. The proprietary indicator gauges when inflows or outflows related to stock-based funds point to investors moving too far to either side. The current reading on the indicator is 6.8 ( A reading above 8 forms a sell signal.) Hartnett highlighted a few contrarian trades for a hard landing scenario, which includes going long cash and defensive stocks, and short technology companies. For a “no landing” scenario, where the economy would continue to grow but inflation stays high, the strategist recommends buying commodities and energy stocks.
This story originally appeared on CNBC
