A trustworthy buy signal has recently emerged in the stock market, as revealed by Bank of America’s global fund manager survey. This survey, which assesses the sentiments of professional investors on Wall Street, has indicated that cash allocations among respondents have risen above the 5% threshold. According to the bank, this triggers a contrarian buy signal for stocks, which has historically been followed by significant gains. Bank of America’s Michael Hartnett stated that since 2011, such buy signals have resulted in 2% returns for the S&P 500 within two months, 4% within three months, and 7% within six months.
In October, the average cash allocation of survey respondents increased to 5.3% from 4.9% in September. Notably, it briefly exceeded 6% in October 2022, marking the bottom of the 2022 bear market. While the rise in cash allocations suggests a growing caution towards stocks among investors, the majority still anticipate an optimistic economic scenario, referred to as a “Goldilocks” scenario.
According to the survey, 64% of respondents believe that the global economy will experience a soft landing or maintain its current pace of growth over the next year. This percentage is more than double the 30% of investors who anticipate a hard landing in the form of a recession. Other consensus views of the survey respondents include expectations of lower interest rates and bond yields, an increase in optimism regarding China’s economic growth, and consistently lower levels of inflation in the future.
This data leads Hartnett to suggest that the support level for the S&P 500 at 4,200 now serves as a solid floor for stock prices in the fourth quarter, assuming the 10-year US Treasury yield remains below 5%. The S&P 500 successfully tested this support level in early October, further supporting this outlook.
Overall, these findings indicate a positive signal for stock market performance, as well as a prevailing optimism among investors.
I have over 10 years of experience in the cryptocurrency industry and I have been on the list of the top authors on LinkedIn for the past 5 years. I have a wealth of knowledge to share with my readers, and my goal is to help them navigate the ever-changing world of cryptocurrencies.
