Pension funds, endowments and mutual funds are spending more on stocks than at any time since the start of the bull market.
Institutions pushed equities up to 68% of their holdings in July, the highest level in 15 months, from 63% in April, a Citigroup survey showed.
In contrast, the ratio of bullish to bearish respondents in a survey by the American Association of Individual Investors has fallen to 0.68, the lowest level since July 2009, based on a four-week average.
The last time money managers and individuals were this far apart was in March 2009, before the S&P 500 began its 63% rally, according to data compiled by Bloomberg. It may signal another buying opportunity after concern the U.S. economy will fall into a recession wiped out $1.6 trillion from American equity values since April, according to Fritz Meyer, a Denver-based senior market strategist at Invesco, which oversees $558 billion.
“That's good news,” Mr. Meyer said. “The retail guy has gotten it wrong more than gotten it right. The odds favor a continued, reasonably healthy economic expansion.”
Equities advanced last week as the S&P 500 gained 2.7%, poised for the biggest monthly increase since July 2009. The rally trimmed the index's loss since April 23 to 10%. Equities slid the most since the bull market began in May and June on concern Europe's debt crisis would derail the global economic recovery. Shares rebounded in the past three weeks as 85% of the 149 S&P 500 companies that have reported earnings topped the average analyst estimates, Bloomberg data show.
Profits may rise an average 34% in 2010 and 17% in 2011, the fastest two-year growth since 1995, according to forecasts tracked by Bloomberg. More than 160 S&P 500 companies are scheduled to post quarterly results this week, including Exxon Mobil.
Pension funds, endowments, hedge funds and mutual funds say they're preparing for a rally, according to Citigroup's questionnaire from 120 respondents among those groups. Fifty-four percent said U.S. equities may gain 10% to 20%, compared with 50% in the previous reading.
Bill Miller, chairman and chief investment officer of Legg Mason Capital Management, said in a letter to investors last week that this is a “once-in-a-lifetime opportunity” to buy stocks of large U.S. companies.