A record number of market pros believes stocks are too expensive

• Some 83 percent of fund managers believe U.S. stocks are overvalued, according to the Bank of America Merrill Lynch monthly fund manager survey.
• Allocations are shifting, with big moves to emerging markets and Europe.
• However, many pros think stocks are still cheap when compared to bonds.

More than 4 out of 5 professional investors believe U.S. stocks are overvalued, and they're fleeing to other parts of the world to compensate, according to a survey released Wednesday.

The monthly Bank of America Merrill Lynch fund manager report found 83 percent of respondents saying that domestic stocks are too expensive, a record number for data that reach back to 1999.

Consequently, they are shifting allocations.

Continuing a trend this year, portfolio managers are moving overseas, with allocations to emerging markets hitting a five-year high and Europe seeing the most in 15 months. U.S. levels are at their lowest since January 2008.

Money is going overseas despite multiple geopolitical concerns, including the stability of the European Union.

"In spite of the French presidential election starting in less than a week, investors' perception of Europe is increasingly bullish," said Ronan Carr, BofAML European equity strategist. "Although we agree on the allure of Europe's earnings recovery, complacency looks extremely high."

Valuation has become a bigger concern in the market as the major averages catapulted to record highs after the November election. The Dow industrials breached the psychologically significant 20,000 barrier, then quickly took out 21,000, if only for a short time.

However, gains have been tougher to come by lately, and the blue chip index is off nearly 3 percent from its early March peak.

Brendan McDermid | Reuters

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

Stocks vs. bonds

The S&P 500 now trades at about 17.5 times expected earnings over the next 12 months, which is the highest level since 2002.

"Stocks remain stretched vs. history on the majority of metrics we track, in fact, the only way stocks still look cheap is relative to bonds," BofAML said in a recent piece of research. "Today's elevated valuations suggest longer-term caution on stocks, but ... valuations typically matter little in the final stage of a bull market during which sentiment and positioning are the key drivers of returns."

Enthusiasm had been running near record levels as well earlier this year, but has cooled off as returns have slowed.

The most recent Investors Intelligence survey, which polls professional newsletter editors, saw the bulls drop to 51.9 percent, off a 20-year high of 63.1 percent two months ago. Those expecting a correction ahead rose to 29.8 percent.

However, others caution about making too much of valuation.

Wells Fargo analysts say stocks are "fairly valued" when compared with the low yields that bonds continue to offer.

And Sam Stovall, chief investment strategist at CFRA, pointed out that as of the end of last week, just 30 percent of the 148 so-called subindustries within the S&P 1500 were trading above their 10-week moving averages. That's just half the long-term trend of 60 percent.

"While this is certainly an indication of recent weakness, it may also be viewed upon as a source of near-term optimism, since it implies that the market may be oversold," Stovall said.