The stock market flashes a major new sell signal: BofA survey

A stock market, in full-on autopilot mode headed into 2021, could be nearing a breather if for no other reason than investors may need some time to reassess ever climbing stock valuations amid numerous macro risks in the months ahead.

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The over-exuberance on the Street is front and center in the latest Bank of America Securities Fund Manager Survey. Fund managers surveyed this month are Underweight cash for the first time since May 2013. In other words, portfolio managers are holding very lean levels of cash and chasing stocks given the rampant momentum in markets that has emerged in recent months.

Average cash levels in portfolios are at 4%, the survey found, triggering a “sell signal” according to BofA strategists. The firm’s research shows the S&P 500’s return was a negative 3.2% over a one-month time horizon when cash levels were this low.

BofA says fund managers are buying up stocks in the hopes of COVID-19 vaccines helping to revive global growth and corporate earnings in 2021. Many more investors say the global economy is in an early-cycle phase (70%, highest since January 2010) as opposed to recession (12%), which as seen in 2009 & 2012 is a key recovery milestone,” BofA writes.

All in all, BofA notes this was their most bullish fund manager survey of 2020.

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Looking around Wall Street, one would be hard pressed to find bears even as the pandemic rages out of control and is starting to weigh again on global growth.

The Nasdaq Composite, S&P 500 and Dow Jones Industrial Average have continued their record-setting paces this month. Airbnb and DoorDash saw insanely bullish responses to their IPOs last week. Not a day goes by without a buzzy new SPAC debut. And the benchmark for exuberance in markets — share of Tesla — are up 8.8% this month and 53% in the past three months.

Unbridled momentum such as this is beginning to concern some Wall Street veterans, who say a healthy pullback could be nearing.

“The fundamental backdrop of excess with the synchronized global recovery is very powerful. This isn’t a go out and sell everything you own because the market might pullback 5% to 10%. Our view is that this sentiment of extreme bullishness — opposite of where it was a month and a alf ago — is something that could cause this pause in the upside,” warned Canaccord Genuity Group chief market strategist Tony Dwyer on Yahoo Finance Live.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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