'Sell the vaccine': Big-money investors are the most bullish they have been since January 2018 — and Bank of America says that's a signal to get out

ReutersFILE PHOTO: A Bank of America logo is pictured in the Manhattan borough of New York City
  • Investor bullishness surged to its highest point since January 2018 amid US election outcomes and encouraging vaccine progress, Bank of America strategists said Tuesday.
  • Fund managers’ allocations to stocks hit a net 46% overweight in the November 6 to November 12 period, closing in on the 50% threshold that indicates “extremely bullish” levels, according to the bank.
  • The recent rotation to value stocks can continue through the end of the year, but the strategists recommend investors “sell the vaccine” as the market comes close to reaching “full bull.”
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November has so far brought a spate of good news for stock bulls, but Bank of America fears the market might now be too cheerful for its own good.

The bank’s latest fund manager survey shows investor optimism surging this month to its highest point since January 2018. Managers’ allocations to stocks reached a net 46% overweight, inching closer to the 50% threshold that indicates sentiments are “extremely bullish.”

The survey took place from November 6 to November 12, signalling US election outcomes and encouraging progress on Pfizer and BioNTech’s coronavirus vaccines led to the jump in bullishness. Investors rotated into value stocks on November 9 at the fastest pace since 2008, and cash holdings fell below their pre-pandemic levels.

Rising exposure to riskier assets signals investors are more convinced than ever that the US recovery is on track, but Bank of America’s strategists advised clients to avoid blindly entering a crowded trade.

“Reopening rotation can continue in the fourth quarter but we say ‘sell the vaccine’ in coming weeks and months as we think we’re close to ‘full bull,'” the team led by Michael Hartnett wrote in the Tuesday note.

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The survey’s timing fails to capture a similar, albeit smaller, value rotation seen Monday after Moderna announced that its own vaccine was highly effective at protecting against COVID-19. The Dow Jones industrial average and S&P 500 closed Monday at record highs and investors pushed further into the so-called reopening trade.

Despite last week’s shift from tech giants to small-caps, fund managers surveyed said they still view tech stocks as the most crowded trade by a massive margin. Month-over-month allocation shifts show investors placing larger bets on small-caps, emerging-market assets, banks, and energy stocks. Positioning weakened in bonds, cash, and consumer staples stocks, according to the bank.

The coronavirus resurgence remains the biggest tail risk among surveyed managers, with a potential tech bubble and civil unrest following behind. The reading comes as virus cases spiked to record highs in the US and continue to trend higher. Several cities reinstated partial lockdown measures over the past week to curb community spread, reviving concerns of a double-dip recession.

Still, 91% of respondents expect the economy to grow stronger over the next year, and more investors say the economy is in the early stages of an expansionary cycle as opposed to mired in recession.

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