Bank of America (NYSE:BAC) Survey Shows Fund Managers Bullish on Equities

The monthly survey of Bank of America (NYSE:BAC) of fund managers found them bullish on the global equities markets, as the unbridled optimism continues to pour out, possibly setting many up for a huge pull back.

According to the survey responses, "Risk appetite is strong (risk composite 46 vs. a long term avg 40) but contained with average cash holdings rising slightly to 3.7% and hedge funds reigning back equity exposure."

It also noted, "This month we saw a further surge in allocation to the US and a sharp improvement in the stance on Japan to a net positive reading."

Fund managers said they're 27 percent overweight in the U.S. and 5 percent in Japan.

Bank of America concluded, "The level of equity enthusiasm and relatively low cash levels signal some concern but there is to us little evidence of over-exuberance in the survey. The risk to a bullish consensus is if US growth expectations are derailed by either weaker data or tighter policy. This suggests time for portfolio protection & diversification rather than out and out selling."

Citigroup (NYSE:C) Raises U.S. Equities to "Neutral"

Citing profits for U.S. companies improving, Citigroup (NYSE:C) raised the overall U.S. equities sector to a "Neutral" rating.

Robert Buckland, Citigroup’s London-based chief global equity strategist, said, “Earnings momentum is improving, although valuations stop us from moving all the way to overweight.”

There is a big question lingering over equities, as Citigroup mentions, with valuation high and a significant economic turnaround yet to happen.

An irrational exuberance is pervading the markets now, but that will eventually come crashing down as the fallout from government policies and the implementation of QE2 by the Federal Reserve unfolds.

The seemingly unending coverage of lower unemployment is unconvincing as well, as we'll have wait until after the Christmas layoffs are counted before we really know the condition of the job market, although it remains weak by any metric used.

The increase in applications for unemployment benefits last week confirms this is the case.