BofA strategists led by Michael Hartnett said they expect the cyclical equity rotation into banks and energy to resume in the fourth quarter. They also recommended selling the S&P 500 above 3,600 index points, which is about 1.9% above Monday’s close.
Other highlights of the October BofA survey include:
• Hedge funds increased net equity exposure to 42% from 30%, the highest level since June 2020
• A net 39% of investors expect a credible Covid-19 vaccine to be announced in the first quarter
• Covid-19’s second wave is seen as the biggest tail risk, followed by the U.S. election
• Long U.S. tech stocks remains the most crowded trade followed by short U.S. dollar and long gold trades
• Allocation to Euro-zone stocks increased 4 percentage points to a net 26% overweight, to remain the region with the highest overweight globally
• Allocation to U.S. equities rose 1 percentage points to a net 19% overweight
• Investors remain deeply net underweight U.K. stocks at 33% even after slightly increasing allocation, while exposure to Japanese stocks increased the most of any region in October to a net 4% overweight