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‘No champagne for S&P 3,000:” Fund managers react to market’s latest melt-up

Scott Gamm

The S&P 500 crossed a historic threshold in July, but asset managers aren’t celebrating just yet.

That’s the assessment from Bank of America Merrill Lynch’s Global Fund Manager Survey, which is titled “No champagne for SPX 3,000.” On July 12, the S&P 500 (^GSPC) closed above 3,000 for the first time ever.

“73% [of respondents] rank the business cycle as a risk to financial market stability, an 8-year high, reflecting global manufacturing PMIs at 7-year lows and expectations for global EPS to decline 1%,” the analysts wrote in a note to clients, led by Bank of America Merrill Lynch’s chief investment strategist Michael Hartnett.

Though one key tell of investor sentiment, cash levels, suggests fund managers are boosting their risk appetite. Cash levels fell 0.4% month-over-month in July to 5.2%, but that’s still above its 4.6% 10-year average.

Close-up of hands toasting champagne flutes during dinner party at home

“[A] dovish Federal Reserve & trade truce have caused investors to reduce cash and add risk,” the analysts said.

Some 69% of respondents expect the Fed to announce a cut to short-term interest rates later this month.

“[When] asked which assets would perform best should the Fed return to [zero interest rate policy], investors said gold, 30-year Treasuries & emerging market debt,” the analysts said.

Biggest market risks

As for the largest tail risks to the market, 36% of respondents pointed to the trade war, but that’s down from roughly 55% in the June survey. Trade tensions have softened ever since President Trump and China’s President Xi Jinping struck a truce at the G-20 meeting, though tariffs still remain in place, and no trade deal has been reached.

The other tail risks respondents pointed to were monetary policy ineffectiveness and a slowdown in China’s economy.

The Bank of America survey was conducted from July 5 to July 11, featuring 207 panelists with a total of $598 billion in assets under management.

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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