Fund Managers Hit Near-Record Levels of Bullishness

Fund managers are the most overweight equities they've been in years...

In fact, today's bullishness is the highest it has been in 10 years. This isn't the kind of bullishness that should scare you out of the market, though.

While there's plenty of speculation going on, these managers seem to be bullish at the right time.

It's proof that the Melt Up is in full force... and that it can continue. That's because the recent high optimism should mean more upside ahead in U.S. stocks, based on history.

Let me explain...

The Bank of America Merrill Lynch Global Fund Manager Survey came out last week. The survey asks more than 200 fund managers questions about the market. And since Bank of America has tracked this data over the past 20 years, it can lead to useful insights.

One of the big takeaways from this latest survey is how bullish the group is on U.S. stocks. A net total of 62% of these managers said they are overweight stocks.

That's the second-highest reading on record. It's only lower than the overweight number the survey recorded in 2011.

That's the Melt Up in action, my friend. Rising stock prices mean everyone is making money. And that makes them want to own stocks in a big way.

It's a virtuous cycle. But it doesn't have to mean the fun is over yet. In fact, these fund managers have a history of being bullish at the right times...

The percentage of fund managers overweight equities has been near today's level a handful of times. We saw similar readings in 2003, 2004, 2006, 2011, and more. We also saw this kind of behavior from 2013 to 2015.

U.S. stocks did incredibly well in the mid-2000s. The S&P 500 was up nearly 90% from its 2003 low to the end of 2006. Being bullish in those years led to great gains for investors.

The same was true after fund managers were overweight stocks in 2011. From the end of 2011 to the end of 2012, stocks were up 16%.

The last example we can look at was when fund managers were similarly overweight stocks in the thick of the latest bull market. That time, U.S. stocks went up 25% from their February 2014 lows to their peak in 2015... And that bull market wouldn't see a 20% drawdown until 2020.

In short, fund managers are overweight stocks in a big way. The Bank of America survey shows the highest overweight rating since 2011. But this bullishness isn't a sign that we should get out.

History shows that these managers tend to be bullish at the right times. It's another sign that U.S. stocks – and the Melt Up – can rally from here.

Good investing,

Chris Igou

Further Reading

"I have never seen such a dramatic change from mass pessimism to mass optimism as we have seen this year," Steve says. So what does this mean for the Melt Up today? Find out right here: What This Massive Sentiment Shift Means for Investors.

"Activity in the service sector is at the highest level on record," Chris writes. The worst of the pandemic could be behind us here in the U.S. And that's another great sign for U.S. stocks going forward... Learn more here.

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Market Notes


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