Are Investors Too Bullish for Their Own Good?

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Bulls and Bears

The new year is bringing more optimism to Wall Street as investors are feeling better about global growth prospects. This is especially true for the United States and Europe. As a result, they also feel better about equity returns, but are investors getting ahead of themselves?

The proportion of investors who say the global economy will strengthen this year increased to a net 75 percent in January from a net 71 percent in December, according to a new survey from Bank of America Merrill Lynch, which polls fund mangers that have an overall total of $653 billion of assets under management. A net 48 percent expect corporate profits to climb higher. Both the U.S. and Japan are the most favorable prospects for profits. However, sentiment about Europe also improved significantly month-over-month.

“Managers are positioned for a strong profit recovery in Europe, and the upcoming earnings season is key to maintaining this stance; given the high sentiment, any earnings disappointment will likely be punished by investors,” said John Bilton, European investment strategist.

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