Per a Bank of America Merrill Lynch survey, global fund managers are the most bullish on American stocks in June for the first time in 15 months driven by a solid profit outlook. About 64% of the managers said that the United States has the best profit outlook in 17 years.
The rounds of upbeat economic data, which indicate robust growth after the first-quarter slowdown, have compelled global managers to pour money into domestic equities. American manufacturing is enjoying a 21-month winning streak, average hourly wages have been rising with 2.7% year-over-year growth, and unemployment has dropped to 3.8%, which is the lowest level since 2000. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May (read:Â 4 Solid Reasons to Buy Mega-Cap ETFs Now).
Part of the optimism can also be traced back to a decline in sentiment surrounding other regions. Higher allocation to equities is coming at the expense of Eurozone and emerging markets equities. This is primarily due to ongoing trade disputes as well as rising corporate debt in Eurozone and the emerging markets that would thwart global growth and derail the stock markets. Additionally, Fed rate hikes are also dampening the appeal for the emerging market equities.
Among the sectors, technology, banks and energy are the most popular while consumer staples, utilities and telecom have fallen out of favor. In fact, FAANG and BAT remain the most crowded trade for the fifth month per the survey. FAANG is a cluster of Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX)Â and Google-parent Alphabet (GOOGL)Â while BAT is an acronym for Baidu (BIDU), Alibaba (BABA)Â and Tencent (TCEHY). For the first time since the sell-off in February, technology has overtaken banks as the bigger overweight.
Shorting U.S. Treasury bonds and buying the U.S. dollar are the other two “most crowded” trades. Meanwhile, commodities have also become popular with the allocation reaching an eight-year high thanks to a surge in oil price.
