Around the globe, investors are feeling more optimistic about US stocks and are betting heavier that Wall Street’s record-long bull market has more gas in the tank. According to the latest monthly survey of fund managers by Bank of America Merrill Lynch, released last week, investors are increasingly optimistic about US stocks.
Specifically, there is a net allocation of 21% overweight to the US equity markets among America’s investors, the highest such level since January 2015. The US was also named as the most favored equity region globally for a second straight month. The allocation to international equities, on the other hand, fell 11 percentage points last month, to slightly below the long-term average.
The chart below illustrates how investors in general now favor US stocks over global emerging market (GEM) stocks. The chart goes back almost 20 years, and you can see how investors’ preferences have changed over that period. According to the latest BOA survey, a net 69% of those polled said that US is the most favorable region when it comes to earnings expectations, a record level in the 17-year history of the survey.
The strong picture for corporate profits, along with improving economic data, has helped US stocks shrug off all manner of headwinds, resulting in a low-volatility market that has generally been trending higher, setting new record highs frequently and as this is written.
The view that US stocks are supported by strong and improving fundamentals has helped investors shrug-off the prospect of a potential trade war with major trading partners. This despite President Donald Trump issuing or threatening tariffs on hundreds of billions of dollars worth of goods worldwide, especially on China our largest trading partner.
I’ll have more to say about Trump’s trade war next Tuesday in Forecasts & Trends. While I have never been a fan of tariffs or trade wars, I have determined that Trump at least has a strategy for what he’s doing. Whether it works or not is another question, which I’ll address next week.
The bottom line of the above discussion is that global investors are growing more and more enamored with US equities. That can be a good or bad thing. On the positive side, since so many investors were flushed out of the stock markets during the financial crisis, there may still be a lot more to come in and buy and support even higher US equity prices.
On the negative side, with almost 70% of global investors now bullish on US equity prices, it could be that most of the buying has already occurred and we could be near a market top. Based on “contrary opinion” theory, a bullish reading of nearly 70% is cause for concern. Time will tell.
No President Has Been This Unpopular With an Economy This Strong
This statistic struck me as particularly interesting: President Donald Trump’s unpopularity is unprecedented given the current strength of the economy.
According to a Bloomberg analysis of polling data, Trump is the first US president since such records have been kept whose approval rating is consistently low even though consumers have a very favorable assessment of the US economy.
Trump’s low approval rating is a big problem for Republicans as they try to maintain control of Congress. White House Budget Director Mick Mulvaney acknowledged as much last week, telling Republican backers in a private meeting that they need to get voters to focus on the economy and not on Trump in November. This may be a tall order given growing concerns about Trump’s trade war.
The good news is, there is little doubt that the US economy is on a roll. Gross domestic product expanded at its fastest clip in four years in the second quarter. Unemployment is near the lowest point since the 1960s and wages look to be finally on the rise. Consumer confidence is at or near record highs.
The trouble for Trump: While consumer sentiment on the economy is currently higher than the average of any president since the poll started in the 1980’s, his approval rating as measured by a separate Washington Post/ABC News survey is the lowest of the lot.
“The economy booms, but President Donald Trump’s numbers are a bust,” said Quinnipiac University pollster Tim Malloy.
Clearly, “a strong economy does not guarantee a popular presidency,” said Gary Langer of New York-based Langer Research Associates.
I don’t know about you, but I found it interesting that Mr. Trump has the lowest approval rating of any president in the Modern Era, despite the fact that we have an economy this strong. But maybe we shouldn’t be surprised. Trump is unlike any president in my lifetime.
Gary,
Really appreciate your analysis. While I would vote for Trump again I would definitely have to hold my nose. He is great for the economy but what an a$$hole. While I agree that the news media plays fast and loose with the facts Trump is even worse. He should just keep his mouth shut and they should take away is twitter feed. Though he does seem to be handling the Kavanugh(sp) situation a little better. Once again thanks for your insightful analysis and allowing me to vent.
I would not put too much trust in the survey.
The Post and ABC are left leaning and biased.
Trump has surprised them before, and he can do it again.
The Republicans, and the right (they are not the same)
need to emphasize the economy, the jobs, the optimism
and fatter wallets of most working people.