Yahoo Finance

Wall Street is feeling bullish, according to the latest fund manager survey from Bank of America. Cash levels hit their lowest levels since 2010, as equity investors rotate their holdings into bond sensitive sectors. Joining us now, we've got Yahoo Finances Josh Shafer. Josh, there were some elements of this survey that remained a larger trend, but perhaps some new elements as well there.

Yeah, Brad. I mean, interesting. So we've been talking about low cash levels in this survey for a while now, but for cash levels to fall to 3.5%, that asset, that's where they're seeing their allocation to cash, these fund managers. Lowest level we've seen in about 15 years. And really, guys, what that tells me is sort of the market action we've been talking about over the past couple weeks, which is people want to keep their money in the market. People want to be in stocks right now, whether it be perhaps maybe different stocks, different sectors than we've been talking about over the last couple years, but it seems like there's a clear bias here from investors to keep their money in the market. And that was one of the broader takeaways. Also another chart here, guys, pointing out that fund managers still see the magnificent 7 trade as the most crowded trade. Again, when we think about the action over the last month and a half, if I think mag 7's the most crowded trade, I'm probably going to put my money somewhere else. And that's been the market action that we've seen sort of to start this year, right, has been people allocating in other areas, perhaps outside the mag 7.

And then to that point, just in terms of the expectations, where they're expecting to see some of that outperformance too.

Yeah, so, uh, so overall, some fund managers pointing out that they think they're going to see more outperformance outside of US equities, which was pretty interesting, Seana. So they pointed to global equities, they also pointed to gold, you know, gold pushing higher this morning, right? Global equities have actually been outperforming the S&P 500, depending on what you look at. We're looking at a chart here of just the emerging markets ETF from BlackRock. You put that over the S&P 500, emerging markets up about 6%, S&P 500 up about four to start this year. Seeing that trend a little bit this morning too, uh, EEM outperforming a little bit compared to the broader market, at least in pre-market trading. But there's been a little bit of a shift here of, okay, European stocks are super undervalued. Most people would argue that. Maybe growth is a little bit better than expected there. Maybe that's an opportunity space when you think about the US and the economic narrative we're starting to look at here, which is, were we too bullish on overall economic growth going into this year, and does it come down a little bit? And US stocks are overvalued, right? So it's a, it becomes a discussion of just where do I think I can get a better return? But there is sort of a growing case for maybe a little bit less mag 7, a little bit more of the other US equity space, and then also maybe there's some opportunity in the rest of the world here. You guys mentioned Alibaba earnings later this week, but that's a stock that's been really hot and people have been talking a lot about China stocks too.

You mentioned the risk on appetite here, which is clearly at play and, and it shows through some of the charts that you've been running through. What type of perhaps risk does that also put on the table for the broader markets, especially as we're trying to figure out, all right, if 6,600 is perhaps one of the average consensuses that we're seeing out there, the chop that we would see in route to that 6,600 S&P 500 target as well.

Yeah, yeah, this is something we've been talking to strategists about too, Brad. We're talking about people want to stay in the market, but there's a lot of money moving around into different areas. So if you don't have sort of that mag 7 leadership, maybe that's why you don't get your 20% return in the S&P 500, right? There's a lot of stocks outperforming the index right now. There's almost half of the index is outperforming. The companies within it are outperforming the index, but there's different names, right? And they're smaller names. They're not your large names. So you're starting to see a little bit of a shift in terms of where the outperformance is coming from. And I guess to put it as they like to say, it is a little bit of a stock picker's market right now. So if you're into that, there's some opportunity out there for once, which we haven't seen over the last two years.

Yeah, and Josh, just going back to what you were saying a moment ago, just in terms of some of the catalysts that investors do see on the horizon, and this really speaks to the fact that some of that leadership may be coming from outside the mag 7, even outside of US equities. But in addition to China, we talked about in second place or the second biggest driver may be is AI productivity, right? And then the third is the Fed cut. It's, it's, it's just interesting to see just in terms of where the Fed now sits in the overall macro investment theme, and very much just in terms of the fact that we've been talking to strategists day in and day out, and they're saying just in terms of the fact that the Fed isn't expected to cut too much this year, just one cut, maybe before the end of the year, potentially even for no cuts. It, it's not so much of a concern, maybe for the markets as we initially would have thought going into this year.

Yeah, no, and we've priced out, so we went from two cuts, we basically priced out one of those cuts last week. Sort of teetering between one and two right now, but the market hasn't been overly shocked by that, right? Stocks have been pretty resilient through each piece of data. You guys mentioned Fed minutes coming out tomorrow in a pretty quiet economic week. That will be one of the bigger releases of the week. And I think the key question for the Fed minutes and for the market will have from Fed minutes is, does the Fed still have an easing bias? Right now, we are under this impression that if the Fed were to move in 2025, it would be reducing rates. There is not a lot of discussion that their next move would be a hike. As long as there's an easing bias, that's part of your bull case for stocks, and that's why stocks have done okay. If we start to think, um, they're really worried about the tariff story and they're really worried about where inflation could head at the end of 2025, and there's real debate about hikes, that's when I think Fed might be a higher risk on it comes up from number three to maybe number two, number one, because rates staying here might be okay, rates going higher, that's a different story.

Certainly. All right, Josh, great stuff. Thanks so much for breaking that down.