Stocks are overvalued but they have room to keep rising anyway.

That's the takeaway from the latest Bank of America monthly fund manager survey, which finds a net 78 per cent number see stocks as overvalued – a record number that even exceeds readings seen during the late 1990s technology bubble.

But valuation concerns haven’t stopped managers rushing back into equities, with cash levels sinking from 5.7 to 4.7 per cent, the biggest drop since August 2009. Similarly, hedge fund equity exposure has soared to its highest level since September 2018, while fears of prolonged recession have halved.

So has irrational exuberance taken hold? No. A majority say this is a bear market rally, not a new bull market. Only 18 per cent expect a V-shaped recovery. The bank’s Bull and Bear Indicator is still in bear territory, suggesting sentiment remains muted.

In short, Wall Street is past “peak pessimism” but recent optimism is “fragile, neurotic, nowhere near dangerously bullish”. The pain trade is for stocks to keep going higher.