A record 46% of respondents to Bank of America/Merrill Lynch's (BAC) Fund Manager Report said the stock market is overvalued, while 28% said an equity bubble would be the least surprising market event.

The monthly survey found investors think the two biggest tail risks to the market are a policy mistake by either the Federal Reserve or the European Central Bank or a crash in global bond markets. 22% bet on central bank policy error, while 19% see the possibility of the bond market tanking.

But about half of the respondents said Fed balance sheet reduction is a non-issue. A balance sheet decrease would be a risk-off event that could push bond yields higher and equities lower, said about one-third of respondents.

Although 43% of those who answered see inflation as a structural event, a record high 42% expect a Goldilocks scenario with above-trend growth and below-trend inflation. 46% predict secular stagnation.

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