The massive stock rally we've seen since March has been missing one ingredient...
Any kind of interest from the investment pros.
That's no surprise. These folks got crushed when COVID-19 crashed the market. And that made them skeptical about getting back in.
Now, for the first time since this rally began, that's changing.
We got proof of it this week. And as I'll show you today, this sudden interest from the investment pros could help drive the next leg of the stock rally.
Let me explain...
This big news comes from one of my favorite sources for sentiment from investment professionals... the Bank of America Merrill Lynch Fund Managers Survey.
This monthly survey asks around 200 professional fund managers about their thoughts, concerns, and most important, what they're doing with their money.
Just getting insight from one of these folks could be useful. But asking that many and sifting through the results can give incredible insights. That's the case this month...
The most recent survey came out this Tuesday. And it contained two crucial data points that tell me the investment pros are finally getting on board this major market rally.
First, the cash levels these folks hold continue to fall. The October survey shows current cash levels at 4.4%. That's not historically low – we'd want to see a number below 4% to consider it extreme. But it's an important level for two reasons.
First, it's the lowest we've seen since the COVID-19 crisis began. And more important, the decline in cash levels since the post-crash peak is the fastest we've seen since 2003.
Said another way, professional investors haven't gotten this bullish, this quickly, since right after the worst of the tech bust. That means that right now could be the start of a major boom.
Don't worry about wild valuations or anything like that... These professionals aren't, at least.
That's the second important piece from the survey. It asks each respondent for the biggest "tail risk" they see that could hurt stocks. These are the unlikely events... but the ones that could cause the most damage.
Not surprisingly, the possibility of more issues with COVID-19 has been and continues to be the No. 1 response. But the shift between second and third place has been interesting.
In September, the possibility of a tech bubble was the second biggest concern by far. But that changed this month...
Concerns over a tech bubble fell dramatically, while the looming U.S. election took the second spot. And that's after a month where stocks rose and tech stocks' valuations did nothing but grow.
This is a big change in sentiment. It tells me that the investment pros are finally throwing caution to the wind. They're not worried about a potential bubble. Instead, they are holding less cash and diving into the market headfirst.
This is the exact kind of mentality that can drive stock prices higher in the coming months. And it tells me this bull market has plenty of room to run.
Good investing,
Steve
P.S. This new mentality is part of a big change that's brewing for my Melt Up thesis... And on Wednesday at 8 p.m. Eastern time, I'm hosting a free Melt Up event online to explain what it means for your money. This is an evening you won't want to miss. I'll even be giving away the name and ticker of a recommendation I believe could go up as much as 350%. You can sign up to attend for free right here.
Further Reading
"If you don't get on board now, the opportunity will pass you by," Steve says. The stock bottom in March scared a lot of people out of the market. But the trend is in our favor and conditions are primed for another run higher from here... Read the full story: You've Got to Own Stocks Now.
"When it comes to economic indicators, it's hard to know what's important and what's not," Chris Igou writes. But right now, a handful of indicators are pointing to an uptrend in stocks. And that makes them worth understanding today... Get the full story here: An Improving Economy Is Setting Up a Great Opportunity in U.S. Stocks.
Not all stocks are lucky enough to enjoy the full boom of the Melt Up. The best performers tend to share a few traits or an underlying theme...
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Danaher (DHR)... medical supplies
Qualcomm (QCOM)... semiconductors
Zoom Video Communications (ZM)... video conferencing
Alibaba (BABA)... Chinese e-commerce platform
Etsy (ETSY)... online marketplace
Costco Wholesale (COST)... membership-only stores
Target (TGT)... big-box retailer
Bed Bath & Beyond (BBBY)... home goods
Dick's Sporting Goods (DKS)... sporting goods
Dunkin' Brands (DNKN)... coffee and donuts
McDonald's (MCD)... burgers and fries
FedEx (FDX)... parcel delivery
Caterpillar (CAT)... heavy machinery
Lennar (LEN)... homebuilder
D.R. Horton (DHI)... homebuilder
NVR (NVR)... homebuilder
MSA Safety (MSA)... safety equipment
Rollins (ROL)... pest control
Flutter Entertainment (PDYPY)... "vice" stocks
NEW LOWS OF NOTE LAST WEEK
Not many... It's a bull market, you know!
