Investors are increasingly bullish on US stocks, with a record 36% of respondents in Bank of America's December survey indicating an overweight position in equities, the highest in the survey's history. This shift coincides with a drop in cash allocation to 3.9% and a growing belief that the global economy will avoid a recession in 2025. Despite signs of persistent inflation, 33% of investors anticipate a "no landing" scenario, where growth remains strong without a significant decline in inflation.
U.S. stock indexes pulled back, with the S&P 500 down 0.4% and Nvidia's stock falling 1.2%, marking its eighth loss in nine days. Despite this, the S&P 500 is up nearly 27% for the year, buoyed by strong economic resilience and expectations of favorable policies from President-elect Trump. Bitcoin briefly surpassed $108,000 before retreating to around $106,500.
Bank of America’s December Global Fund Manager Survey indicates a potential "sell" signal for risk assets, with cash levels at a three-year low and a significant bullish sentiment among investors. The average cash allocation among fund managers has fallen to 3.9%, triggering a contrarian indicator that historically suggests a market peak. Previous instances of similar cash levels have led to negative returns in global equities, while current allocations show a preference for US stocks and global banks, despite a notable underweight in European equities.
European markets are facing significant challenges due to political turmoil and tariff threats, leading to a record underperformance compared to U.S. stocks. However, some investors see potential for recovery, citing attractive valuations and possible catalysts like German stimulus and a rebound in China. Despite ongoing economic struggles, there is growing interest in European assets, particularly in sectors poised to benefit from improved conditions.
US stocks reached all-time highs following positive jobs data, with the S&P 500 on track for its best annual return since 2019. The labor market remains stable, supporting expectations for a Federal Reserve rate cut in December, while inflation data next week will be crucial for future policy decisions. Corporate highlights include Lululemon's significant stock gain, DocuSign's revenue forecast boost, and Victoria's Secret raising its outlook after strong sales.
Bank of America strategists are monitoring the Nasdaq 100's relative pricing against the S&P 500, which is nearing a critical level that could signal a shift away from US equities. A drop below this threshold may prompt investors to reconsider their positions in US tech stocks and the dollar, indicating a potential end to "US exceptionalism" trades.
Bank of America strategists recommend investing in international stocks, particularly in China and Europe, ahead of Donald Trump's inauguration. They anticipate supportive monetary and fiscal policies in these regions as a counter to potential U.S. tariffs, with China easing fiscal policy and the European Central Bank expected to cut interest rates aggressively.
Investors are increasingly turning to gold as a hedge against inflation and populism ahead of the US election, according to Bank of America strategists. The precious metal reached a record high, with gold funds experiencing their largest weekly inflow since July 2020.
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