Fund Managers' Current Asset Allocation - March

Summary: A tailwind for the rally over the past year has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash.

Sentiment has turned bullish.  Optimism towards the economy has surged to a 2-year high and profit expectations are near a 7-year high.  As a result, global allocations to equities rose to a 2-year high in March and "risk appetite" is also at a 2-year high. All of this suggests the big tailwind for equities has now dissipated. The one remaining positive is the high cash balance at funds.

Europe and Japan are now the most overweighted equity markets on a relative basis. Allocations to the US have dropped as the region has underperformed so far in 2017; this is where US equities typically start to outperform again. The weighting towards emerging markets has jumped in the past two months; this is now back to where the last two rallies in that region have started to fade.

Findings in the bond market are still of greatest interest. Inflation expectations are at 13-year highs, a level at which yields have reversed lower in the past.  Fund managers' allocations to global bonds fell to a more than 3-year low in March, a level which has often marked a point of capitulation.

For the fourth month in a row, the dollar is considered the most overvalued in the past 11 years. Under similar conditions, the dollar has fallen in value in the month(s) ahead.

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Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels dropped from 5.8% in October 2016 to 4.8% in March. Recall that 5.8% was the highest cash level since November 2001. Cash remained above 5% for almost all of 2016, the longest stretch of elevated cash in the survey's history. Some of the tailwind behind the rally is now gone but cash is still supportive of further gains in equities. A significant further drop in cash in the month ahead, however, would be bearish. Enlarge any image by clicking on it.

Households' Equity Ownership Reaches 30%. It's Statistical Noise

Summary: Households have 30% of their financial assets in equities, the same proportion as they held at bull market peaks in the 1960s and in 2007. Does this mean another bear market is imminent? No. Two of the last three times the purportedly significant 30% level has been reached, stocks gained another 40-60%. The level is statistical noise.

Households' equity ownership proportion mostly reflects the appreciation in the stock market: their equity proportion fell almost in half in the last bear market yet during this time, investors actually added new money to equity funds. The level of households' assets in equities seems to closely predict high and lows in the stock market because they both measure the exact same thing: the level of the stock market.

There are better ways to measure investor sentiment and valuations, both of which, like the equity proportion, rise during bull markets and fall during bear markets.

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Chances are you have seen a chart like the one below. It shows US households' equity ownership as a proportion of total household financial assets (blue line) versus the stock market (red line).  The message is usually this: US households now own more equity than at the stock market peak in 2007. It's a sign that another bear market is imminent. Enlarge any chart by clicking on it.

Fund Managers' Current Asset Allocation - February

Summary: Global equities are more than 25% higher than in February 2016. A tailwind for this rally has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash.

That's no longer the case.  Fund managers became bullish again in December, and remain so now. Optimism towards the economy has surged to a 2-year high. Cash remains in favor (a positive) but global equity allocations are back above neutral for the first time since late 2015. Another push higher and excessive bullish sentiment will become a headwind.

The US is the most overweighted equity market on a relative basis. Emerging markets are the most underweighted.

Findings in the bond market are of greatest interest. Fund managers' allocations to global bonds are now at prior capitulation lows. Moreover, inflation and growth expectations have jumped to the highest level since early 2011, after which US 10-year yields fell in half over the next several months.

The dollar is considered the most overvalued in the past 10 years. Under similar conditions, the dollar has fallen in value in the month(s) ahead.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $550b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels dropped from 5.8% in October 2016 to 4.9% in February. Recall that 5.8% was the highest cash level since November 2001. Cash remained above 5% for almost all of 2016, the longest stretch of elevated cash in the survey's history. Some of the tailwind behind the rally is now gone but cash is still supportive of further gains in equities. A significant further drop in cash in the month ahead, however, would be bearish. Enlarge any image by clicking on it.

Fund Managers' Current Asset Allocation - January

Summary: Global equities are nearly 25% higher than in February 2016. A tailwind for this rally has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash.

That's no longer the case.  Fund managers became bullish again in December, and remain so now. Optimism towards the economy has surged to a 2-year high. Cash remains in favor (a positive) but global equity allocations are now back above neutral for the first time in a year. Another push higher and excessive bullish sentiment will become a headwind. The main exception to this is emerging markets, which are now out of favor and a contrarian long.

Findings in the bond market are of greatest interest. Fund managers' allocations to global bonds are now at prior capitulation lows. Moreover, inflation and growth expectations have jumped to the highest level since early 2011, after which US 10-year yields fell in half over the next several months.

The dollar is now considered the most overvalued in the past 10 years. Under similar conditions, the dollar has fallen in value in the month(s) ahead.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $500b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels dropped from 5.8% in October to 5.1% in January; cash is up slightly from December. Recall that 5.8% was the highest cash level since November 2001. Cash remained above 5% for almost all of 2016, the longest stretch of elevated cash in the survey's history. Some of the tailwind behind the rally is now gone but cash is still supportive of further gains in equities. A significant further drop in cash in the month ahead, however, would be bearish. Enlarge any image by clicking on it.

The Set Up In Bonds As The FOMC Considers A Second Rate Increase

Summary: Bond yields usually rise as the FOMC raises rates. This is one of the mostly strongly held consensus views in the market right now. A year ago, investors also thought yields were set to rise; instead they fell over the next half year. Might investors be wrong now once again?

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The FOMC will likely raise the target for the federal funds rates later today. We discussed the affect of rate increases on various asset classes a year ago when the FOMC enacted their first rate increase since 2006. The general conclusion was that equities, commodities and bond yields all rose in the subsequent months. That post is here.

Those conclusions were mostly right. The one exception was bond yields. On the day of the rate increase in December 2015, 10 year yields in the US hit 2.33% (arrow). That was the high until November 2016, 11 months later.  In the interim, yields fell 100 basis points over the next half year.

Fund Managers' Current Asset Allocation - December

Summary: Global equities are more than 20% higher than in February. A tailwind for this rally has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash. This was in stark contrast to 2013, 2014 and early 2015, during which fund managers were heavily overweight equities and underweight cash and bonds.

Fund managers have finally become bullish again. Optimism towards the economy has surged to a 19-month high. Cash remains in favor (although levels dropped significantly in the past two months) but global equity allocations are now back to neutral for the first time in a year.

Bearish sentiment had been a persistent tailwind for US equities in the past year and a half.  That's no longer the case. Another push higher and excessive bullish sentiment will become a headwind. Global equity allocations would already be excessively bullish if not for Europe, where sentiment has dropped. Emerging markets became the consensus long in October and the region has since been pummeled. Those markets are now in the process of resetting.

Findings in the bond market are of greatest interest. Fund managers' allocations to bonds are near prior capitulation lows. Moreover, inflation expectations have jumped to the highest level in 12-1/2 years and expectations that the yield curve will steepen are the highest in 3-1/4 years. When this has happened in the past, yields have been near a point of reversal lower, at least short-term.

The dollar is now considered the third most overvalued in the past 10 years. Under similar conditions, the dollar has fallen in value in the month(s) ahead.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $500b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels dropped from 5.8% in October to 4.8% in December. That is a big drop for two months, but recall that 5.8% was the highest cash level since November 2001. Cash has remained above 5% for all of 2016, the longest stretch of elevated cash in the survey's history. A good amount of the tailwind behind the rally is now gone but cash is still supportive of further gains in equities. A significant further drop in cash in the month ahead, however, would be bearish. Enlarge any image by clicking on it.

Fund Managers' Current Asset Allocation - November

Summary: Throughout 2013, 2014 and early 2015, fund managers were heavily overweight equities and underweight cash and bonds. Those allocations entirely flipped in 2016, with investors persistently shunning equities in exchange for holding cash.

Global equities are more than 15% higher than in February. A tailwind for this rally has been the bearish positioning of investors. Cash remains in favor (although levels dropped significantly this month) and equity allocations are just slightly higher than in February. Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.

Bearish sentiment remains a tailwind for US equities. That is somewhat less true for European equities. Emerging markets became the consensus long last month and the region has since been pummeled. Those markets are now in the process of resetting.

Findings in the bond market are of greatest interest this month. Fund managers' inflation expectations have jumped to the highest level in 12-1/2 years. Similarly, their expectations that the yield curve will steepen are the highest in 3-1/4 years. When this has happened in the past, yields have been near a point of reversal lower, at least short-term.

The dollar is considered overvalued for the first time since April 2016. Under similar conditions, the dollar has fallen in value in the month(s) ahead.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels dropped from 5.8% in October to 5% in November. That is a big drop for one month but recall that 5.8% was the highest cash level since November 2001. Cash has remained above 5% for all of 2016, the longest stretch of elevated cash in the survey's history. Some of the wind behind the rally has faded but cash remains supportive of further gains in equities. A significant further drop in cash in the month ahead, however, would be bearish. Enlarge any image by clicking on it.

Fund Managers' Current Asset Allocation - October

Summary: Throughout 2013, 2014 and early 2015, fund managers were heavily overweight equities and underweight cash and bonds. Those allocations have entirely flipped in 2016, with investors persistently shunning equities in exchange for holding cash.

Global equities are more than 15% higher than in February. A tailwind for this rally has been the bearish positioning of investors, with fund managers' cash in October rising to the highest level since 2001. Similarly, their equity allocations are now like those in February, mid-2010 and mid-2012, periods which were notable lows for equity prices during this bull market. Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.

Allocations to US equities had been near 8-year lows over the past year and half, during which the US outperformed most of the world. After rising for two months during the summer, allocations fell again to underweight in both September and October. Bearish sentiment remains a tailwind for US equities.

European equity markets, which had been the consensus overweight and also the world's worst performing region, are now underweighted relative to their long term mean.  Investors are chasing the world's best performing region - emerging markets - which now have their highest overweight in 3 1/2 years. Emerging markets may rise further but note that the contrarian long trade is now over.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers' cash levels at the equity low in February were 5.6%. Despite the rise in global equities since then, cash levels are now higher, at 5.8%. This is equal to the high after the Brexit vote in July, higher than at any time during the 2008-09 bear market and at the highest since November 2001. Even November 2001, which wasn't a bear market low, saw equities rise nearly 10% in the following 2 months.  High cash levels are supportive of further gains in equities in the month(s) ahead. Enlarge any image by clicking on it.

Interview with Financial Sense on US Macro and Equities

We were interviewed by Cris Sheridan of Financial Sense on September 21, the day of the FOMC rate decision. During the interview, we discuss the good and the not so good within the macro environment, the Fed, corporate fundamentals, investor positioning and what all of this means for US equities in the months ahead.

Our thanks to Cris for the opportunity to speak with him and to his editor for making these disparate thoughts seem cogent.

Listen here.

If you find this post to be valuable, consider visiting a few of our sponsors who have offers that might be relevant to you.

Fund Managers' Current Asset Allocation - September

Summary: Even after the sell-off over the past week, global equities are more than 15% higher than in February. A tailwind for this rally has been the bearish positioning of investors, with fund managers' cash in February at the highest level since 2001. Similarly, their equity allocations in February had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Remarkably, allocations to cash in September are as high as in February and allocations to equities are now even lower. Investors have jumped into the safety of bonds, with allocations rising to a 3 1/2 year high in June and July.  Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.

Allocations to US equities had been near 8-year lows over the past year and half, during which the US outperformed most of the world. After rising the past two months, allocations fell again to underweight in September. Bearish sentiment remains a tailwind for US equities. European equity markets, which had been the consensus overweight and also the world's worst performing region, are now underweighted relative to their long term mean.  Investors are chasing the world's best performing region - emerging markets - which now have their highest overweight in 3 1/2 years.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels at the equity low in February were 5.6%, the highest since November 2001 and higher than at any time during the 2008-09 bear market. Cash has remained high ever since: it peaked at 5.8% in July and is only modestly lower in September at 5.5%. High cash levels are supportive of further gains in equities in the month(s) ahead. Enlarge any image by clicking on it.

Fund Managers' Current Asset Allocation - August

Summary: Since February, US equities have risen more than 20%. Equities outside the US have risen 16%. A tailwind for this rally has been the bearish positioning of investors, with fund managers' cash in February at the highest level since 2001. Similarly, their equity allocations in February had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Remarkably, allocations to cash in July were even higher than in February, and fund managers became underweight equities for the first time in 4 years. Investors dove into the safety of bonds, with allocations rising to a 3 1/2 year high in June and July.

Now in August, cash allocations are only slightly lower than in February and allocations to equities only slightly higher. Both are about one standard deviation away from their long term mean. Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.

Allocations to US equities had been near 8-year lows over the past year and half, during which the US has outperformed most of the world. That has now changed: exposure to the US is at a 20-month high. There is room for exposure to move higher, but the tailwind for the US due to excessive bearish sentiment has mostly passed. That's also the case for emerging markets which have been the best performing equity region so far in 2016.  European equity markets, which have been the consensus overweight and also the world's worst performing region, are now the contrarian long trade within equities.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels at the equity low in February were 5.6%, the highest since the post-9/11 panic in November 2001 and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Remarkably, with the SPX 20% higher, cash in July was even higher (5.8%) and at the highest level in 14 years (since November 2001).  That has moderated only slightly in August, falling to 5.4%. High cash levels are supportive of further gains in equities in the month(s) ahead (enlarge any image by clicking on it).

Fund Managers' Current Asset Allocation - July

Summary: Since February, US equities have risen nearly 20%. Equities outside the US have risen 12%. A tailwind for this rally has been the bearish positioning of investors, with fund managers' cash in February at the highest level since 2001. Similarly, their equity allocations in February had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Remarkably, allocations to cash are now even higher than in February, and fund managers are now underweight equities for the first time in 4 years. Fund managers have pushed into bonds, with income allocations rising to a 3 1/2 year high in June and July. Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.

Allocations to US equities had been near 8-year lows over the past year, during which the US has outperformed most of the world. That has now changed: exposure to the US is at a 17-month high. There is room for exposure to move higher, but the tailwind for the US due to excessive bearish sentiment has mostly passed. That's also the case for emerging markets which have been the best performing equity region so far in 2016.  European equity markets, which have been the consensus overweight and also the world's worst performing region, are now underweighted by fund managers for the first time in 3 years.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels at the equity low in February were 5.6%, the highest since the post-9/11 panic in November 2001 and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Remarkably, with the SPX having since risen nearly 20%, cash in July is now even higher (5.8%) and at the highest level in 14 years (since November 2001).  Even November 2001, which wasn't a bear market low, saw equities rise nearly 10% in the following 2 months; that rally failed when cash levels fell under 4%. This is supportive of further gains in equities.

Fund Managers' Current Asset Allocation - June

Summary: Through early June, US equities had risen 17% from their lows in February. Equities outside the US had risen 15%. A tailwind for this rally was the bearish positioning of investors, with fund managers' cash in February at the highest level since 2001. Similarly, their equity allocations in February had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Remarkably, allocations to cash are now even higher than in February, and allocations to equities dropped to a new 4-year low. Fund managers have pushed into bonds, with income allocations rising to a 3 1/2 year high in June. Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.

Allocations to US equities remain near their 8-year lows, a level from which the US should continue to outperform, as it has during the past year. Europe remains overweight. Emerging market allocations have jumped significantly in the past five months and are now the most overweight since September 2014, a high from which emerging market indices fell over the next half year.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels at the equity low in February were 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Remarkably, with the SPX having since risen 17%, cash in June is now even higher (5.7%) and at the highest level in 14 years (since November 2001).  Even November 2001, which wasn't a bear market low, saw equities rise nearly 10% in the following 2 months. This is supportive of further gains in equities.

Fund Managers' Current Asset Allocation - May

Summary: At the panic low in equities in February, fund managers' cash was at the highest level since 2001, higher than at any time during the 2008-09 bear market. Since 2009, allocations had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Since then, equities around the world have risen an average of 16%. Despite this, both cash and equity allocations are basically unchanged since February. This supports higher equity prices in the month(s) ahead.

Allocations to US equities fell to back to their 8-year low in May, a level from which the US should continue to outperform, as it has during the past year. Europe remains overweight. Emerging market allocations have jumped significantly in the past four months and are now overweight for the first time since September 2014, a high from which emerging market indices fell over the next half year.

The dollar is no longer considered overvalued. In the past three months, the dollar index has fallen 6%.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels at the equity low in February were 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Remarkably, with the SPX now 15% higher, cash in May (5.5%) is still near the highs.  Even November 2001, which wasn't a bear market low, saw equities rise nearly 10% in the following 2 months. This is supportive of further gains in equities.

Fund Managers' Current Asset Allocation - April

Summary: At the panic low in equities in February, fund managers' cash was at the highest level since 2001, higher than at any time during the 2008-09 bear market. Global allocations to equities had fallen from 40% overweight to only 5% in just two months. Since 2009, allocations had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Since then, equities around the world have risen an average of 14%. Despite this, investors remain defensive. Over the past month, cash balances have risen and allocations to equities have declined. This supports higher equity prices in the month(s) ahead.

Allocations to US equities remain near an 8-year low, a level from which the US should continue to outperform, as it has during the past 12 months. Europe remains overweight. Emerging markets remain underweighted but allocations have jumped significantly in the past three months.

The dollar is still considered overvalued. Under similar conditions, the dollar has fallen in value. In the past two months, the dollar index has fallen 6%.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels in February were 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Cash in April (5.4%) is still near the highs and is supportive of further gains in equities.

Fund Managers' Current Asset Allocation - March

Summary: At the panic low in equities in February, fund managers' cash was at the highest level since 2001, higher than at any time during the 2008-09 bear market. Global allocations to equities had fallen from 40% overweight to only 5% in just two months. Since 2009, allocations had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Since then, equities around the world have risen an average of 12%. Despite this, investors remain defensive: cash balances remain high and allocations to equities have increased only slightly. This supports higher equity prices in the month(s) ahead.

Allocations to US equities remain near an 8-year low, a level from which the US should continue to outperform, as it has during the past 11 months. Europe remains very overweight. Emerging markets remain underweighted but allocations have jumped significantly in the past two months.

In February, the dollar was considered to be the most overvalued in the past 9 years. Under similar conditions, the dollar has fallen in value. In the past month, the dollar index has fallen 5%.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels in February were 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Cash in March declined to 5.1%. This is still high and supportive of further gains in equities.

Where SPY Will Go Next According to Twitter Finance

Summary: Despite a 10% rally, investors on Twitter Finance have not turned more bullish, even when given a strong disincentive to be bearish. From a pure sentiment basis, this implies that the current rally probably has further upside ahead.

* * *

The day after the February low, we posted a survey on Twitter Finance: would SPY rise $15 or fall $15. From a price of $185, these were symmetrical outcomes.

The result of the survey was a bit surprising: a small majority foresaw a further fall. At the time, SPY had already fallen by about 14% and investors sentiment was extremely bearish. A good hypothesis would have been that many more on Twitter Finance would be bearish than the survey showed.

This week, we posted a second survey: would SPY rise $10 or fall $30. Instead of a symmetrical outcome like in the first survey, we made it much easier to choose the bullish option. The survey also came after SPY had risen 10% in three weeks. A good hypothesis would have been that many more on Twitter Finance would have turned bullish. Instead, there was no change from the first survey.

Despite the strong rally over the past month, flows into equity funds have continued to be negative. Sentiment surveys from a number of sources have shown only a small uptick in bulls (click here for an example). An interesting study by Brett Steenbarger shows that shares in SPY have been redeemed on a net basis over the past several weeks, meaning: "Investors have not believed in this rally and, if history holds, that's one indication that the rise could continue" (click here for his article).

In the same way, our Twitter Finance surveys showed no increase in bulls even after a 10% rally and the addition of a low bull hurdle/high bear hurdle as an incentive to choose the bullish option. From a pure sentiment basis, this implies that the current rally probably has further upside ahead.

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Fund Managers' Current Asset Allocation - February

Summary: Fund managers' cash in February rose to the highest level since 2001, higher than at any time during the 2008-09 bear market This is bullish for equities.

In the past two months, global allocations to equities have fallen from 40% overweight to just 5%. Since 2009, allocations have only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market. This is bullish for equities.

Allocations to US equities remain at an 8 year low, a level from which the US should continue to outperform, as it has during the past 10 months. Europe remains very overweight. Emerging markets were the only region that saw an increase in exposure; it is still very underweighted and the region's recent outperformance should continue.

Among sectors, exposure to industrials fell to the lowest level since August-2011 and banks to the lowest level since December 2012.  Among defensive sectors, allocation to utilities is now the highest since September 2011. From a contrarian perspective, some cyclical sectors may be set up to outperform defensives.

The dollar is considered to be the most overvalued in the past 9 years. Under similar conditions, the dollar has fallen in value.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Cash: Fund managers cash levels jumped to 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This is extraordinary. Current levels are an extreme that is normally very bullish for equities. Even November 2001, which wasn't a bear market low, saw equities rise nearly 10% in the following 2 months.

Fund Managers' Current Asset Allocation - January

Summary: Fund managers' cash in January rose to the third highest level since the bear market low in 2009. This is bullish for equities.

Global allocations to equities dropped in half in the past month. Since 2009, equity allocations have only been lower in mid-2010, mid-2011, mid-2012 and mid-2015; all of these periods were notable lows for equity prices during this bull market. This is bullish for equities.

Allocations to US equities remain near an 8 year low, a level from which the US should continue to outperform as it has during the past 9 months. Europe remains very overweight. Emerging markets are near a record underweight.

Among sectors, exposure to industrials fell to the lowest level since mid-2012 and mid-2011.  From a contrarian perspective, the sector may be set up to outperform.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

Let's review the highlights from the past month.

Fund managers cash levels jumped to 5.4%, the third highest level since 2009. Cash has been over 5% six of the past seven months, the first time it has been this high for this long since late-2008 and early-2009. Current levels are an extreme that is normally very bullish for equities. Similar periods were market lows in mid-2010, mid-2011 and mid-2015.

Fund Managers' Current Asset Allocation - December

Summary: Fund managers' asset allocations in September and October indicated the most bearishness since 2012. It was a strong contrarian bullish set up for equities, especially in the US, and equities rallied (post).

Fund managers' cash in December remains high. This is bullish.

Global allocations to equities are near 7-month highs.  However, this is mostly due to Europe and Japan. Allocations to Europe are the fourth highest ever, conditions under which the region would usually underperform.  Allocations to Japan also jumped higher this month.

Allocations to the US dropped to an 8 year low, a level from which the US should continue to outperform as it has the past 8 months. Emerging markets continue to be very underweighted.

The dollar is considered to be the second most overvalued in the past 7 years. Under similar conditions, the dollar has fallen in value.

* * *

Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.

The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).

In September, fund managers held 6-year high levels of cash and 3-year low levels of equities: a strong contrarian buy signal. Since then, SPX is up 7% (post).

Let's review the highlights from the past month.

Fund managers cash levels jumped back up to 5.2%; it's been over 5% five of the past six months, the first time it had been this high for this long since late-2008 and early-2009. This is an extreme that is normally very bullish for equities.