(Bloomberg) -- Investors are likely to be forced to chase the stock rally sparked by the US-China trade truce after mostly missing out on last month’s rebound, Bank of America Corp. strategists said.

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A survey by the bank conducted before the trade talks in Geneva showed fund managers were a net 38% underweight on US stocks, the most in two years. Exposure to the dollar was the lowest since 2006, with about 40% of respondents looking to increase hedges against declines in the US currency.

Optimism over the economic outlook has significantly improved following the agreement between Washington and Beijing to temporarily cut tariffs on each other’s products.

But with investor exposure to stocks so low, market participants have warned a sustained equity rally would leave bearish positions sitting on steep losses. At the same time, chasing the market higher from already elevated levels could induce more pain for traders.

The poll is “bearish enough to suggest pain trade modestly higher” given the US-China deal would prevent a recession or a shock in credit markets, strategist Michael Hartnett wrote in a note.

He added that a “no landing” scenario where the economy avoids a downturn would be most positive for US stocks, emerging markets, small caps and energy. It would have the most negative impact on gold.

US equities have been rebounding on signs of a reprieve in President Donald Trump’s trade war. The S&P 500, which had slumped as much as 19% from its February record high, is now close to recouping all declines for the year.

Bullish Chorus

Meanwhile, strategists at BBVA said there’s scope for the rally to extend further as institutional and hedge fund investors remain widely underexposed to equities. Hedge funds’ net leverage is near five-year lows and mostly short US stocks, while systematic strategies remain under-positioned, strategist Michalis Onisiforou wrote in a note to clients.

Market strategists at Goldman Sachs Group Inc. raised their 12-month target for the S&P 500 to 6,500 from 6,200, implying gains of another 11% from current levels. Analysts’ earnings expectations have also improved, with a Citigroup Inc. index showing upgrades outnumbering downgrades for the first time this year.

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UBS Global Wealth Management, however, just cut its recommendation on the asset class to neutral from attractive, saying the past month’s rebound had left risk-reward looking more “balanced.”

BofA’s global survey was conducted from May 2 to May 8, and canvassed 174 participants with $458 billion in assets under management.

--With assistance from Michael Msika and Christian Dass.

(Adds details on economic outlook and earnings expectations from third paragraph.)

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