Investors are becoming more and more optimistic about stocks, and that probably presages a market correction in the fall, says Michael Hartnett, chief investment strategist for Bank of America Merrill Lynch (BAML).
Fund managers' equity allocations advanced to their second-highest level in 13 years this month, according to
BAML's Fund Manager Survey. A net 61 percent of the 228 managers surveyed are now overweight stocks.
"Investor sentiment is beginning to melt-up," Hartnett wrote in the report,
CNBC reported. "The summer melt-up is likely to be followed by an autumn correction."
Editor’s Note: New Warning - Stocks on Verge of Major Collapse
In addition, a net 21 percent regard stock markets as overvalued, the survey’s highest reading since 2000.
The Standard & Poor's 500 index fell 3.82 points, or 0.2 percent, to 1,973.28. The index is down 0.6 percent from its most recent all-time high of 1,985.44 set July 3. The index had a trailing price-earnings ratio of 19.1 as of Friday, up from 18.4 a year earlier, according to Birinyi Associates.
The report also showed that a net 71 percent of respondents expect global core consumer price inflation to be higher a year from now, up from 58 percent in June. A net 69 percent forecast that the world economy will strengthen during the next year.
As for stocks, their short-term direction will likely be determined by second-quarter earnings reports, many market participants say.
"We got started off with a very good report out of Citibank," which reported stronger-than-expected profit Monday, Phil Orlando, chief equity strategist at Federated Investors, told
The Associated Press.
"And economic news this week — retail sales, capacity utilization, housing data, confidence data — is all supposed to be pretty good."
Editor’s Note: New Warning - Stocks on Verge of Major Collapse
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