Record percentage of investors say stocks are overvalued, according to Bank of America survey

Key Points
  • More than 3 in 4 money managers believe the market is overpriced, the most since the Bank of America survey began in 1998.
  • More than half say the comeback from the March lows is a "bear market rally." Just 37% believe it's a new bull market.
A pedestrian passes in front of the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images

A record percentage of money managers believe the stock market is "overvalued," according to the Bank of America Global Fund Manager Survey, one of the longest-running and widely followed polls of Wall Street investors.

Seventy-eight percent of investors say the market is overpriced, the highest percentage since the survey began in 1998 and exceeding the levels when the dot-com bubble burst in 1999-2000.

Bank of America surveyed 212 mutual fund, hedge fund and pension fund managers with $598 billion under management.

Here are some of the key findings, conducted during the week that ended Thursday:

  • Some 53% say the comeback from the March lows is a "bear market rally." Just 37% believe it's a new bull market.
  • Only 18% expect a V-shaped economic recovery from the coronavirus. Most expect a U- or W-shaped recovery.
  • Investors took cash levels down from 5.7% to 4.7% since last month, the biggest "dash from cash" since 2009.
  • The top "tail risk" investors fear is a second wave of coronavirus infections, with 49% citing that as a top concern, followed by permanent unemployment and a Democratic sweep in the election.
  • 72% of investors say U.S. tech and growth stocks are the "most crowded trade."

While valuation is never a good market timing tool, the survey's readings should raise concerns considering its history and the large amount of money its respondents control. More than 70% of the respondents believed the stock market was overvalued before the pullback at the end of 2018. Stocks did eventually recover to new highs and kept rallying until the coronavirus hit early this year.

The S&P 500 has rallied 40% off its coronavirus low in March, puzzling many investors who believe the virus will lead to a longer drag on the economy and earnings. The forward price-earnings ratio of the S&P 500 jumped to above 23 times this month as prices increased and earnings expectations collapsed. That's the highest valuation in two decades.