A sharp rally since April's lows has fund managers more convinced than ever that U.S. equities are overpriced, with a record share calling valuations excessive while crowding back into the “Magnificent Seven trade.”
- The MAGS ETF has rallied 54% since April’s lows. Check the chart here.
Bank of America's August Fund Manager Survey shows 91% of participants now see US stocks as overvalued — the highest reading since the poll began in 2001, up from 87% in July.
"Long Magnificent 7" — the group of mega-cap tech leaders including NVIDIA Corp. (NASDAQ:NVDA), Microsoft Corp. (NYSE:MSFT), Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon Inc. (NASDAQ:AMZN), Meta Platforms Inc. (NASDAQ:META) and Tesla, Inc. (NASDAQ:TSLA) — reclaimed the title of most crowded trade, cited by 45% of respondents, its first time back at the top since March. "Short US dollar" fell to second place with 23%.
The United States is viewed as the most overpriced equity market globally, while emerging markets are seen as the cheapest, with a net 49% calling them undervalued, the highest since February.
Sentiment Remains Bullish Despite Price Concerns
Michael Hartnett, Bank of America's chief equity strategist, said this isn't a clear inflection point for markets, but sentiment is the most bullish it has been since February.
Just 5% of managers are positioned for a hard landing – a scenario of strong growth deceleration – down from earlier in the year.
The survey found that 68% of managers expect a soft landing for the economy, while 22% believe there will be "no landing" at all, meaning growth continues without slowing.
Cash holdings have dropped to a historically low 3.9% of assets under management, and equity allocations have climbed for the fourth month in a row, reaching a net 14% overweight — the highest level since February.
Artificial intelligence optimism remains high: 55% now say AI is already boosting productivity, up from 42% in July.
Gold, Crypto Still On The Sidelines
Crypto exposure remains minimal, with only 9% of managers holding any, and a weighted portfolio allocation of 0.3%.
Gold is more popular — held by 48% — but average allocation is just 2.2%. Most investors, 41%, report no gold exposure at all.
Trade war fears remain the top "tail risk" at 29%, but that's down from 38% in July.
Concerns about sticky inflation blocking Federal Reserve rate cuts climbed to 27%, while 20% fear a sharp jump in bond yields and 14% see a possible AI stock bubble as the biggest threat.
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