With high hopes for profit and growth, investors are rotating into US equities at the expense of the eurozone.
After over a year being underweight US equities investors are flocking back, according to Bank of America Merrill Lynch’s June Global Fund Managers Survey.
This suggests fears over US market being overvalued and on the edge of a downturn have eased.
‘Investors have their eyes on the US this month,’ said Michael Hartnett, chief investment strategist. He adds: 'With a record high favourable outlook for profits and a return to US equity allocation.’
Most investors still view the US as having strong economic fundamentals. The majority of investors surveyed do not think the US will enter recession until at least 2020, while a sizeable minority expect growth to end towards the end of 2019.
Bullish sentiment can also be seen in predictions for the S&P 500 index. Roughly half of investors surveyed believe the index will peak past 3000 points, with 25 per cent of the total surveyed predicting a peak at somewhere between 3001 and 3150. On 11 June 2018, the index closed at 2782.
Likewise, investors are hopeful on US profits. As the dark blue line on the chart below shows, 64 per cent of investors surveyed now think that the US has the most favourable profits outlook compared to other regions around the world, the highest figure reached in 17 years.
Part of the bullishness of the US stems from a decline in sentiment surrounding other regions. As the chart below shows, the rotation in US equities has been in part at the expense of emerging market and eurozone equities.
Indeed, investors have been moving back in tech, following fears around the sector earlier this year.
While investors have warmed once again to US stocks, eurozone equities were hit hard. They saw their largest drop in allocation among global fund managers since the UK’s vote to leave the European Union in 2016.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now