BANK OF AMERICA: Market bulls have been ‘silenced’ — but there are 2 big reasons why they refuse to give up on stocks

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Bank of America Merrill Lynch’s fund-manager survey shows a handful of statistics that suggest bullish sentiment has been tempered.
Yet the stock market continues to climb higher, and BAML sees two reasons why investors are so reluctant to throw in the towel.

As the stock market has shaken off recent turbulence and continued its long-running chug higher, some shifts have occurred under the surface that suggest investors aren’t as confident as they seem.

For one, cash holdings jumped to 5% from 4.6%, according to Bank of America Merrill Lynch’s latest monthly fund-manager survey, which includes 216 panelists who manage $646 billion. That risk-averse behavior has also been accompanied by equity hedging levels hitting 18-month highs.

Further, a record number of BAML’s survey respondents said companies are excessively levered.

That would all suggest the stock market is heading for some sort of bearish reckoning — the type that transpires when investor sentiment rolls over and traders flee to safety.

Not so fast, says BAML, which sees two main drivers keeping equity demand afloat.

The first is extremely straightforward: Fund managers simply don’t see an imminent catalyst threatening stocks. Just 13% see recession as likely, while only 18% think the nine-year bull market has peaked. As BAML chief investment strategist Michael Hartnett puts it, a “true bull capitulation is absent.”

Secondly, BAML argues fund managers don’t have a favorable alternative. When it comes to investing in bonds over stocks, the firm says 10-year Treasury yields will have to hit 3.5% before such a strategy becomes truly enticing. As of Tuesday morning, it was at 2.83%.

Still, if the last few months have been any indication, stock market conditions can flip at a moment’s notice. One potential catalyst is earnings season, which has historically dictated short-term …read more

Source:: Business Insider

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