Investor bullishness is lowest in a year even as the stock market nears record highs, Bank of America survey finds

US stock trader Wall Street stock exchange woman
Traders have been cheered by earnings but are still concerned about inflation. Brendan McDermid/Reuters
  • Even as stocks near record highs, investors remain skeptical, according to a survey from Bank of America.
  • Investor bullishness is sitting at a 1-year low amid concerns of rising inflation and supply chain disruptions.
  • But third-quarter earnings are beating estimates and the S&P 500 is just 1% away from record highs.
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Investors are skeptical of an October rally that has seen the S&P 500 recover from a 5% decline and near record-highs, according to Bank of America’s fund manager survey.

The survey found bullish sentiment currently sits at a one-year low while cash levels have jumped to a one-year high amid ongoing concerns about rising inflation and supply chain disruptions.

The bearish investor sentiment readings from BofA echoes other indicators that have displayed depressed bullishness among investors in recent weeks. Both the CNN Fear and Greed Index and AAII sentiment readings were at subdued levels earlier this month. Additionally, Google search trends for “Dow Jones” continues to decline, which typically means consumer confidence is on the rise, according to DataTrek.

According to the BofA survey, the biggest risks the market faces are inflation, China’s ongoing regulatory crackdown, COVID-19, and the Fed tapering its monthly bond purchasing program, among others. The survey found that the most crowded trades among investors include long technology stocks, long ESG, and short China and emerging markets.

While bullish sentiment is down for stocks, investors are still putting their cash to work in areas like commodities, the survey found. Commodities are often viewed as a reliable inflationary hedge among investors, which remains top of mind.

Finally, the survey found that most investors expect at least one Fed interest rate increase next year, even as the Fed dot plot leans closer to 2023 for the start of its interest rate hike plans.

The bearish investor sentiment is ultimately a buy signal for contrarian investors, as it can often represent fuel for stocks to climb a wall of worry as fears dissipate, favorable seasonality begins to pick up during the last three months of the year, and skeptical investors throw in the towel and buy.