What’s Going On Here?Looks like investors’ self-help kick in lockdown has got a little out of hand: Bank of America (BoA) is seeing signs that investor optimism has risen to a level that’s signaled trouble for stocks in the past. What Does This Mean?BoA is in the habit of tracking how much investment banks are advising their clients to dedicate to stocks as a percentage of their overall portfolios. And the current average of 59% is dangerously close to the 60% level at which BoA thinks it’s time to sell up. Stock market returns have, after all, historically come in below average the year after investors crossed this threshold. In fact, the last time this “contrarian indicator” flashed a warning sign in June 2007, global stocks went on to drop 13% over the next twelve months…(tweet this) Why Should I Care?Zooming out: China isn’t a financial island.
BoA's in good company: China’s worried investors are getting ahead of themselves too. The country’s financial regulator said on Tuesday that it reckons US and European stock markets are way too high considering the challenges their respective economies are facing. And when those bubbles pop, it won’t just cause havoc for them: Chinese markets – which are now more closely linked to foreign markets than in previous downturns – could take a beating too.
The bigger picture: Your positivity might be rewarded.
All this optimism isn’t totally misplaced, mind you: global economic growth is expected to rebound this year, and central banks and governments will probably keep pumping activity-boosting cash into their economies to the benefit of company earnings. So for all this talk of bubbles, there could still be gains to be had if you’re willing to scale back on more expensive and at-risk stocks, like tech. Goldman Sachs, for one, recommends looking at economically sensitive cyclicals and cheap-looking “value” stocks instead… | 