Pessimism reigns as investors weigh valuations

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Despite an unexpectedly dovish message from the U.S. Federal Reserve last week, a flurry of investor sentiment research paints a picture of pessimism in global markets.

"The overall picture suggests that investment professionals see the search for returns as becoming even more challenging," said Will Goodhart, the chief executive of CFA U.K., which represents Chartered Financial Analysts, in a report out on Monday.

The report showed a jump in the number of CFA members that thought developed market equities were overvalued. 11,000 mostly U.K.-based investment professionals were polled via email and more than half thought developed market stocks were overly expensive.

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The proportion of respondents that thought corporate bonds were overvalued also reached its highest level since the CFA's valuations index was introduced three years ago. Government bonds remained viewed as the most overvalued asset class.

Meanwhile, U.S.-focused TrimTabs said on Sunday that fund flow data "does not bode well" for U.S. equities in the short term. The research firm noted that investors had pumped $46.8 billion into equity mutual and exchange-traded funds this month, the highest inflow in any month since October 2013. These heavy inflows meant TrimTabs was remaining cautious in the near term.

Plus, on Friday, the American Association of Individual Investors survey showed optimism on stocks at a two-year low. Pessimism was at a five-week high, which the organization said was a sign that individual investors had become more cautious about the short-term outlook for stocks.

The reports come as investors contemplate the froth in stock markets that have continuously pushed higher into fresh record highs since the global financial crash of 2008.

The U.S. S&P 500 has clocked gains of just 2.4 percent year-to-date, but managed to climb around 12 percent last year, despite concerns of overvaluation. The index has underperformed its European counterparts this year, with the pan-European Euro Stoxx 600 Index rising 17 percent so far this year.

Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer told CNBC Monday that he did not think risky assets such as equities were yet in bubble territory.

In the same interview, St. Louis Federal Reserve President James Bullard told CNBC that he was concerned that the backdrop of record low interest rates could be fuelling the sharp rise in valuations.

"Interest rates are going to be low – is that going to feed through into an asset-price bubble of some kind over the next couple of years?" he said. "The U.S. has been plagued by massive bubbles in the last two decades – the tech bubble and a housing bubble. The second one caused a macro economic disaster, so that is a massive concern going forward."