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Market Preview: Smart Money Skeptics

NEW YORK ( TheStreet) -- You'd think the mood would be more festive on Wall Street with the S&P 500 looking poised to make another run at pre-financial crisis levels but there's still some skepticism brewing within the smart money crowd.

"The promise of policy stimulus has erased fears of global recession but high cash levels, cautious equity allocations and disdain for banks suggest that investors hate being bullish and would prefer to bet on a short-term bounce in equities rather than a major inflection point in the investment cycle," wrote Michael Harnett, chief global equity strategist at Bank of America Merrill Lynch, in commentary released Tuesday about the firm's latest survey of sentiment among hedge fund managers.

The poll was conducted from Aug. 3-9 and featured a total of 232 respondents with $640 billion of assets under management. While the results showed a dramatic shift to the positive since July, the change seems to be more a reflection of how pessimistic the mood had been than anything else.

B of A said a net 15% of the 173 managers participating in the global survey said they felt the world economy would get stronger in the next 12 months. That was a 28 percentage point swing from the previous month when a net 13% were predicting further weakening across the globe and it represented the "largest leap in confidence since April to May 2009, when the world emerged from the credit crunch."

With earnings season nothing to write home about and the fiscal cliff still in play, the prospect of more central bank accommodation, both at home and abroad, has been given credit for the surge in stock since early June, and the survey's results bore this out.

Eight out of every 10 respondents expected the European Central Bank to launch a bond-buying program by the end of 2012, B of A said, while five of 10 are expecting Ben Bernanke & Co. to pop the cork on QE3 before the year is over. High expectations, of course, raise the prospect of big disappointment if these assumptions don't morph into fact.
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