- 91% of fund managers view US equities as overvalued — the highest consensus since 2001, raising concerns about market sustainability.
- Despite strong recent rallies, core valuation metrics like the P/E ratio and Buffett Indicator suggest US stocks are significantly overpriced relative to historical norms.
- Investor sentiment is shifting: capital flows are pivoting towards non-US equities and emerging markets amid trade tensions and confidence lapses.
- Surveyed experts predict global equities to outperform US stocks over the next five years, citing better valuation and return prospects.
- Certain sectors, notably technology, face acute overvaluation risks, inviting comparisons with conditions preceding historical corrections.
Record Investor Sentiment Flags US Stocks as Overvalued Amid Rally
A staggering 91% of fund managers now view US equities as overvalued, marking the highest such consensus in over two decades, according to Bank of America’s latest global fund manager survey. This sentiment arrives as markets have surged from April lows, raising questions about sustainability and prompting a deeper look at whether valuations have detached from fundamentals.
Survey Highlights and Historical Context
The Bank of America survey, conducted monthly and capturing views from managers overseeing substantial assets, reveals a peak in caution not seen since at least April 2001. This figure eclipses prior highs, with an average of 81% expressing similar concerns over the past decade. Such widespread agreement among professional investors often signals potential inflection points, historically correlating with periods of market consolidation or correction. For instance, similar sentiment spikes preceded pullbacks in the early 2000s, though outcomes vary based on economic backdrops.
Current valuations underpin this unease. The S&P 500 trades at levels deemed expensive on 19 out of 20 metrics compared to historical averages, per Bank of America’s analysis. Metrics like the price-to-earnings ratio and the Buffett Indicator—market capitalisation relative to GDP—sit well above long-term norms, with the latter exceeding 100% of its historical average in some assessments. This overextension follows a robust rally, where US indices have climbed sharply, driven by optimism around technology sectors and anticipated policy shifts.
Implications for Market Dynamics
This overvaluation narrative could foreshadow shifts in capital flows. Bank of America’s data indicates that the share of global equity inflows directed to US stocks has plummeted in 2025, as trade tensions and doubts over American exceptionalism erode confidence. Investors appear to be rotating towards alternatives, with emerging markets and non-US developed equities gaining traction. A separate Bank of America survey from June 2025 projected that global stocks would outperform US equities over the next five years, a view echoed by managers controlling over $500 billion in assets who favour international assets for superior returns.
Sentiment from verified sources, such as Morningstar’s analysis of the July 2025 Bank of America survey, labels investor return expectations as potentially inflated, with cash levels dropping to trigger contrarian sell signals. This aligns with broader professional caution: fund managers have increased equity holdings for four consecutive months, yet the overvaluation consensus suggests a bullish stance tempered by valuation risks.
Analyst Forecasts and Valuation Comparisons
Analyst-led forecasts paint a mixed picture. Bank of America’s chief investment strategist has warned of potential sell-offs in US rallies, citing decade-high valuations offset partially by positive earnings revisions. For context, US corporate profit growth has shown resilience, with capital spending recoveries potentially bolstering earnings per share (EPS) in coming quarters. Models from Oppenheimer, as of July 2025, adjusted price targets for select financials like Bank of America (BAC) following Q2 results, factoring in modest year-to-date gains of 2.2% against peers like JPMorgan (up 19.7%) and Citigroup (up 29.9%). These comparisons highlight relative underperformance in certain sectors, yet underscore the broader market’s premium pricing.
To quantify, the S&P 500’s forward P/E ratio stands elevated against its 10-year average, implying limited upside unless earnings accelerate markedly. Bloomberg data from June 2025 reinforces this, noting the end of US market dominance as investors pivot globally. If overvaluation persists without fundamental support, models suggest a 10-15% correction risk, though this remains contingent on macroeconomic factors like interest rates and geopolitical stability.
Sector-Specific Overvaluation Risks
Drilling down, technology and growth-oriented sectors bear the brunt of overvaluation concerns. Insiders have liquidated shares amid new highs, a trend historically prominent in August–September periods, which often see seasonal weakness. Bank of America’s July 2025 survey summary points to positive earnings revisions turning the tide, yet the NAAIM manager exposure index and other indicators reflect hesitancy. Emerging markets, by contrast, offer more attractive valuations, with Bank of America predicting they could outperform US stocks, gold, and bonds over five years, per managers surveyed in July 2025.
This divergence invites a reevaluation of asset allocation. While US equities have dominated for years, the current sentiment wave suggests a potential mean reversion. Historical parallels, such as the dot-com era, remind that extreme consensus can precede pivots, though today’s environment benefits from stronger corporate balance sheets.
Broader Economic Considerations
Economic headwinds amplify these concerns. Renewed tariff discussions have sparked outflows from US stocks, with nearly $28 billion redirected to cash funds in recent weeks, per Bank of America’s Michael Hartnett. This flight to safety contrasts with the rally’s momentum, hinting at fragility. Investor bullishness hit February highs in the latest survey, yet the overvaluation metric tempers enthusiasm, potentially capping gains.
In summary, the record 91% overvaluation consensus in Bank of America’s August 2025 survey serves as a clarion call for vigilance. While profit growth and spending recoveries provide some ballast, the disconnect between prices and fundamentals warrants caution. Markets may continue melting up in the short term, but history suggests such lopsided sentiment often heralds turbulence—a reminder that when valuations stretch, gravity eventually asserts itself.
| Metric | Current Status | Historical Comparison |
|---|---|---|
| S&P 500 Valuation Metrics | Expensive on 19/20 | Vs. long-term averages |
| Fund Manager Overvaluation View | 91% | Highest since 2001 |
| Global vs. US Outperformance Forecast | Global favoured | Next 5 years, per BofA June 2025 |
| US Equity Inflows Share | Plunged in 2025 | Due to trade doubts |
References
- Bank of America. (2025, August). Global Fund Manager Survey. https://finance.yahoo.com/news/bofa-poll-shows-record-number-080445334.html
- Bank of America. (2025, July). Global Fund Manager Survey. https://www.hedgefundtips.com/july-2025-bank-of-america-global-fund-manager-survey-results-summary/
- Bank of America. (2025, June). Global Fund Manager Survey. https://economictimes.indiatimes.com/markets/stocks/news/bank-of-america-survey-predicts-global-stocks-to-outperform-us-equities-over-next-five-years/articleshow/121942013.cms
- Bank of America Corporation. (2025). Q2 Earnings Releases. https://finance.yahoo.com/news/bank-america-corporation-bac-releases-142746956.html
- Bloomberg. (2025, June 17). US Stock Market’s Outperformance Is Over, BofA Survey Shows. https://www.bloomberg.com/news/articles/2025-06-17/us-stock-market-s-outperformance-is-over-bofa-survey-shows
- Bloomberg. (2025, August). Forward P/E Valuation Analysis. https://www.bloomberg.com/news/articles/2025-07-18/bofa-says-share-of-us-stocks-in-global-flows-has-plunged-in-2025
- Morningstar. (2025, July). Fund Manager Cash Levels Drop, Triggering Sell Signal. https://www.morningstar.com/news/marketwatch/2025071526/fund-manager-cash-levels-drop-triggering-sell-signal-in-latest-bank-of-america-survey
- Oppenheimer. (2025, July). Bank Earnings Adjustments. https://tradingview.com/news/zacks:0dca522ba094b:0-is-bank-of-america-s-slow-start-in-2025-an-opportunity-for-investors
- Yahoo Finance. (2025, July). Equity Holdings Uptick with Overvaluation Concerns. https://www.marketscreener.com/news/fund-managers-increase-equity-holdings-but-more-see-us-as-overvalued-ce7c5ed2dc81f12c
- Daily Hodl. (2025, July 5). Money Managers Predict Emerging Markets Will Outperform. https://dailyhodl.com/2025/07/05/money-managers-controlling-523000000000-say-one-asset-class-will-outperform-us-stocks-gold-and-bonds-over-the-next-five-years-according-to-bank-of-america-survey/
- X.com via Unusual Whales, The Stalwart, GlobalMktObserv, Mike Zaccardi, Barchart. (2025). Market Commentary and Sentiment Posts. https://x.com/unusual_whales/status/1896540309498286427
