U.S. stock investors are incredibly bullish right now, according to a new survey from RBC of 185 institutional investors conducted between March 25 and 31.
Unfortunately, that could be a bad sign for those who think the market bottom is behind us.
“I’m concerned that we have not seen the lows yet,” RBC’s head of U.S. equity strategy Lori Calvasina said on Yahoo Finance’s The Final Round.
“This surprisingly high level of bullishness supports our own view that we haven’t yet seen investor capitulation, echoing what we’ve seen in other data sets,” Calvasina wrote in a note to clients on Thursday morning. “We view capitulation as a necessary, though not sufficient condition for stock market bottoms in major drawdowns.”
In sum, these “highly bullish” investors believe that valuations are attractive, there’s faith in the Federal Reserve, and the economic damage from COVID-19 will be “manageable.” It’s the most optimistic read from investors since RBC’s U.S. Equity Investor Survey debuted in the first quarter of 2018.
Breaking down the results, 58% of respondents said they’re “bullish” or “very bullish,” up from 51% in December. What’s more, 57% of investors say valuations are “attractive” or “very attractive,” which RBC notes is a new record for its survey.
Interestingly, most investors surveyed don’t believe the market has found its trough yet. Of the survey’s respondents, only 19% believe the S&P 500 hit its low in the first quarter, while 57% believe the market will reach a bottom during the second quarter, 15% expect the third quarter, and 9% view it as happening between the fourth quarter and the second half of 2021.
While there’s no clear consensus on where investors think the bottom will be, nearly two-thirds of investors surveyed believe the S&P 500 (^GSPC) the level will be 2,100 or higher, while 35% expect it to bottom at 2050 or lower. The most popular level investors believe for the bottom is 2,200, which garnered 19% of the votes. The S&P hit a closing low of 2,237 on March 23.
In terms of the recovery for stocks, investors are divided as to how that might look. The survey found that 41% think it will be a W shape, while 35% expect a U, and only 19% see a V.
For the most part, the investors dimmed their outlook for the economy over the next six to twelve months. Approximately 36% say they’re “bearish” and 8% “very bearish,” another new record for the survey. Meanwhile, 27% described themselves as “bullish” on the economy and 3% “very bullish.”
Most investors think business and daily life will return to normal this year, with 44% responding that it will be in the third quarter, while 15% believe it will be in the second quarter and another 15% in the fourth quarter.
Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.