Most global fund managers surveyed by Merrill Lynch this month expect interest rates to rise and growth, not cost-cutting, to boost company profits, setting the stage for a classic cyclical recovery. Half of the fund managers viewed bonds as overvalued compared with equities and agreed that global consumer staples and utilities are making way for general industrials.
"The market has entirely discounted a rise in Fed funds; bonds are seen as seriously overvalued while U.S. and U.K. equities, traditionally defensive stock market plays, are falling out of favor with investors," said David Bowers, Merrill Lynch's chief investment strategist. "Although some fund managers might be starting to lock in gains for the year, it will come as a real shock if this recovery is not sustained."
The firm surveyed 299 managers on Nov. 6-13 with a combined $964 billion in assets under management.