Fund managers have become increasingly confident about markets and the global economy, with Bank of America’s August survey showing bullish sentiment at its third-strongest level since 2022 and cash holdings approaching the bottom of their historical range.
Cash allocations declined another 0.1 percentage point during August to 3.5% of assets under management, placing them at the sixth-lowest level recorded since BofA launched the survey in 1998.
That leaves the bank’s Global FMS Cash Rule firmly on “sell,” with the contrarian indicator triggered whenever cash holdings stand at 4.0% or less.
Investors have simultaneously increased their exposure to stocks. Global equity allocations reached a net 56% overweight, their highest since November 2021, extending the period in which fund managers have been overweight equities to 14 straight months.
Expectations for the global economy have become particularly optimistic. A record 56% of respondents believe the economy will experience “no landing”, while 43% anticipate a “boom”, the highest reading for that outcome since February 2022.
“Consensus conviction is no macro landing, no Fed hike, no AI capex cut, no DEM sweep, no bears,” BofA strategists led by Michael Hartnett said in a note.
“Positioning continues to recommend investors retreat or rotate within risk assets rather than reload,” they added.
Expectations for another Federal Reserve interest rate increase have also diminished. The survey found that 72% of fund managers do not anticipate a rate hike before November’s midterm elections, with the proportion increasing from the previous month.
Attention is now turning towards Fed Chair Kevin Warsh’s appearance at Jackson Hole. Some 53% of respondents expect a neutral message, compared with 31% forecasting a hawkish tone and 7% anticipating a dovish approach.
Artificial intelligence remains central to both investor optimism and concerns. Long global semiconductor stocks continues to rank as the most crowded trade, although the proportion identifying it as such dropped sharply to 53% from 82% in July.
An AI bubble was identified as the largest tail risk by 32% of respondents. Separately, 38% said hyperscaler AI capital expenditure was the most likely potential source of a systemic credit event.
Even so, investors largely expect the spending boom to continue. Around 71% believe no hyperscaler will reduce capital expenditure during the current year, while 58% expect AI-related disruption to labour markets to remain limited until at least 2028.
August also produced a shift in sector positioning. Fund managers increased exposure to technology, banking and energy while reducing allocations to industrials and healthcare. U.S. equities moved to a net 27% overweight, their strongest position since December 2024, while emerging markets also attracted greater allocations.
Gold is increasingly viewed as inexpensive, with a net 16% of respondents describing the metal as undervalued, the highest proportion since March 2023.
With consensus positioning already heavily bullish, BofA’s contrarian ideas for August point in the opposite direction. The trades include buying bonds while shorting commodities, favouring Consumer Staples over Technology, buying Consumer Discretionary while shorting banks, and taking a long position in U.K. equities against a short position in U.S. stocks.
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