U.S. tech stocks are the most crowded trade in the world, according to fund managers overseeing $ 601 billion, fueling fears of a bubble that could burst the market recovery.
Investors surveyed by Bank of America Corp. Their conviction on the most popular asset class has never been more unanimous, with 80% of respondents citing long-standing American technology, up from 59% in August. Among the biggest extreme risks in the market, concerns about a tech bubble have jumped to be ranked behind only a resurgence of Covid-19.
BofA’s global survey, conducted the week to September 10, provides insight into investor thinking a week after the massive sell-off of the Nasdaq 100 forced market participants to doubt that the rally of U.S. tech giants can continue. The gains in U.S. stocks over the past six months have been to a large extent led by a group of tech mega-caps and internet stocks known as Faang, which flourished as lockdowns boosted demand for services in line.
Strategists led by Michael Hartnett said that fund managers reported being “paranoid” and reduced their allocation to the sector in favor of more cyclical stocks, such as cheaper value stocks, small caps and industries. see no regional rotation as investors increased their overweighting in US equities and reduced their exposure to eurozone and emerging market equities.
Fund managers feel more confident about the economy, with 49% of respondents saying a global recovery is at an early stage of the cycle, versus 37% who think the world is in a recession. Additionally, investors have not been so optimistic about corporate profit growth since 2011, with 47% of betting profits increasing by 10% or more over the next 12 months.
A Covid-19 vaccine remains at the center of concerns, with 39% of fund managers surveyed expecting it in the first quarter of next year and 32% betting on the fourth quarter of 2020. It is also seen as the main trigger possible for higher rates, followed by inflation.
Other survey highlights include:
- Cash levels increased from 4.6% to 4.8%
- A new bull market in equities has started, according to 58% of respondents
- For the economic recovery, 61% foresee a recovery in a U or W shape, against 20% for a recovery in a V shape
- In addition to technology, investors have also left healthcare, banks and large caps
- Net 18% of investors overweighted equities, but far from being “dangerously bullish”
- UK remains the largest regional underweight, although its equity allocation increased by 2 percentage points