Advisers bearish about US equities

Don’t look now, but money managers haven’t been this underweight in US equities since the days leading up to the financial crisis back in 2008.

Asset allocations for US stocks have reached 20 percent underweight, according to Bank of America Merrill Lynch’s most recent fund manager survey. Meaning that one-fifth of all money managers are bearish on US stocks at the current levels.

The last time that percentage was greater was in January of 2008, when the S&P 500 Index was near its previous peak before crashing during the financial crisis.

“A net 80 percent of investors think the US is the most overvalued region,” strategists, led by Michael Hartnett, wrote, down only slightly from the 84 percent that said the same thing in June’s survey.

The survey was conducted July 7 through July 13 and based on 207 participants overseeing $586 billion in assets.

Investors said the Nasdaq index was the most crowded trade for the third straight month.

Banks overtook tech stocks as the most overweighted sector in the survey.

That suggests that investors might be trying to lock in profits and find greater value elsewhere.

The Nasdaq Composite is up almost 20 percent this year, while the KBW Bank Index has risen 4 percent. It’s the first time this year that money managers have favored banks over technology stocks.

When naming the biggest risks to the markets right now, the three biggest tail risks cited in the survey were a crash in global bond markets, the Federal Reserve or European Central Bank making a policy mistake and Chinese credit tightening.

Despite continued gridlock in Washington, risks that moved lower on the spectrum included delays to tax reform and a trade war, the survey found.