Money managers forecast the S&P 500 will peak at 3,056 and are waiting on 10-year Treasury yields to reach 3.7% before rotating into bonds from stocks, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
This month, the average cash balance of managers fell sharply to 4.7% from last month's level of 5.1% as investors bought into the October market correction.
When asked about their economic and market expectations for 2019, only 11% of respondents said they expect a global recession next year. However, when asked how the global economy will develop over the next year, a net 44% of respondents expect global growth to decelerate in the next 12 months, the worst outlook on the global economy since November 2008. A net 54% expect a slowdown in Chinese growth in the next year, the most bearish outlook in more than two years.
Nearly half (45%) of respondents expect international equities to be the best-performing assets, while 25% expect corporate bonds to be the worst and 24% believe government bonds will be the worst.
When asked at what level the S&P 500 will peak in this bull market run, the weighted average level from managers was 3,056, up 12% from its current level. One in three survey respondents, however, think U.S. stocks have already peaked.
In terms of corporate earnings, a net 29% of investors said they think global profits will deteriorate over the next 12 months — a six-year low — while a net 47% think corporate margins will worsen in the next year — a two-year low.
For the sixth consecutive month, a possible trade war remains the biggest tail risk for managers, with 35% of respondents putting it at the top of their list of concerns.
The top three are rounded out by quantitative tightening (26%) and a China slowdown (16%).
Managers' allocations to U.S. equities climbed 10 percentage points to a net 14% overweight, making it the most favored equity region for respondents. Managers also increased their exposures to U.S. and emerging markets equities, real estate investment trusts and health-care stocks. Allocation to the global technology sector, meanwhile, dropped to the lowest level since February 2009, with just a net 18% of investors saying they are overweight the sector.
"We remain bearish, as investor positioning does not yet signal 'the big low' in asset markets," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results.
The survey of 225 money managers representing a total of $641 billion in assets under management was conducted Nov. 2-8.