The boom in stocks is not yet irrational, Bank of America Merrill Lynch strategists say.
About three-quarters of those managing large funds whom the bank surveyed said tech stocks were either expensive or bubble-like. The survey was conducted June 2-8, right before the tumble on Friday and Monday, and offers more insight into why investors dumped tech stocks.
Also, the share of investors who thought that stocks were overvalued jumped to a record high.
Unlike 1999, BAML said, investors are not reducing their cash holdings even though they think stocks are overvalued, suggesting that there's "no irrational exuberance" yet.
The 21% ascent this year through Thursday continues to prompt several comparisons between now and 1999, just before the height of when tech stocks boomed into a bubble and then crashed.
The Nasdaq 100, which is heavily made up of tech stocks, dived for two days after a 21% ascent this year through Thursday. Traders cited the same concern that the survey highlighted: Tech stocks had gone too high too quickly, and a pullback was in order.
One vulnerability, BAML said, is that expectations for corporate profits are also elevated, increasing the chances of a sharp sell-off if earnings disappoint. This may not be a primary concern for investors after tech stocks on the S&P 500 saw 21% earnings growth in the first quarter.
Source: Business Insider
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