The scale of bullishness in BofA’s August survey points to a market where positioning, rather than valuation or macro risk, may become the more relevant vulnerability in the near term. With cash levels this low and equity allocation at a five-year high, the room for fresh buying power to push markets further is limited, leaving positioning stretched into any negative surprise on growth, inflation or Fed policy. The sharp drop in the share of managers worried about a crowded semiconductor trade, down from over 80 percent to close to half in a month, suggests some rotation has already occurred within tech rather than a wholesale reduction in risk appetite. Contrarian signals embedded in the survey, including gold’s status as most undervalued since early 2023 and bonds as a crowded underweight, point to where sentiment could reverse first if the current consensus view on growth and rates proves wrong.
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I bolded that line on gold above, just be aware of this:
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Fund managers have rarely been this bullish, with cash levels near record lows and almost no one positioning for a Fed hike or an economic slowdown.
Summary:
- BofA’s August Global Fund Manager Survey recorded its third most bullish reading since 2022, based on responses from around 180 managers overseeing more than half a trillion dollars
- Cash levels fell to 3.5 percent of assets under management, among the lowest readings in the survey’s history since 1998, triggering BofA’s contrarian “sell” signal
- Global equity allocation rose to a net 56 percent overweight, the highest since November 2021, marking 14 consecutive months of overweight positioning
- A record 56 percent of respondents expect no economic slowdown, and 43 percent forecast a “boom” outcome, the most since February 2022
- Roughly 72 percent of managers do not expect the Fed to hike rates before the November midterms, and just under a third expect a hawkish tone from Chair Kevin Warsh at Jackson Hole
- Long semiconductors remains the most crowded trade but has eased sharply from a month earlier, while gold is now seen as the most undervalued asset since March 2023
Fund managers have rarely been as bullish as they are right now, according to Bank of America’s latest Global Fund Manager Survey, which recorded its third most optimistic reading since 2022 even as cash levels sank toward historic lows.
The August survey, covering around 180 managers responsible for more than half a trillion dollars in assets, showed cash allocations falling to 3.5 percent, among the lowest levels recorded since the survey began tracking the metric in 1998. That decline is enough to trigger BofA’s contrarian Cash Rule, which flashes a sell signal whenever cash drops to or below 4 percent of assets under management. At the same time, global equity allocation climbed to a net 56 percent overweight, the highest level since November 2021 and the fourteenth consecutive month that managers have held an overweight equity position.
Underpinning the optimism is a striking degree of confidence in the economic outlook. A record 56 percent of respondents said they expect no slowdown or landing at all, while 43 percent forecast an outright economic boom, the highest share since February 2022. BofA’s strategists, led by chief equity strategist Michael Hartnett, characterised the prevailing view as one where investors see little risk from growth, Federal Reserve policy, artificial intelligence spending or the political calendar, with the survey noting that positioning currently favours rotating within risk assets rather than adding fresh exposure.
On monetary policy, nearly three quarters of respondents do not expect Fed Chair Kevin Warsh to raise interest rates before the November midterm elections, and only around a third expect a hawkish tone from him at the upcoming Jackson Hole symposium, with most anticipating a neutral message instead. Opinion was more divided on the market impact of a clean Democratic sweep in the midterms, though a narrow majority still expect equities to fall in that scenario.
Positioning data showed managers rotating into technology, banks and energy during August, while pulling back from industrials and healthcare. Long semiconductors remains the survey’s most crowded trade, but the share of managers flagging it as such fell sharply from the prior month. Concerns about an AI bubble persist as the most cited tail risk, and hyperscaler capital spending was named as the most likely source of a systemic credit event, even though most managers do not expect any hyperscaler to cut spending this year.
The survey’s contrarian trade ideas for August include going long bonds and short commodities, favouring consumer staples over technology, and buying UK equities against US ones, all positions that would run directly counter to where the bulk of the market is currently positioned.
This article was written by Eamonn Sheridan at investinglive.com.