Investor sentiment is approaching some of the strongest levels seen in recent years, but Bank of America believes the current environment does not yet point to a significant top in global risk assets.
The bank’s June Global Fund Manager Survey showed its Bull & Bear Indicator rising to 8.9, a level that traditionally generates a technical sell signal. Nevertheless, strategist Michael Hartnett noted that cash holdings increased modestly during the month, suggesting investors have not become excessively positioned.
Based on historical patterns, Hartnett said “this is not a ‘big top’ for risk assets,” and argued that a more meaningful turning point “will be signaled by bonds & voters.”
Economic Confidence Continues to Build
Fund managers expressed greater confidence in both economic growth and corporate earnings prospects, with expectations reaching their highest levels in three months.
At the same time, concerns about higher interest rates are increasing. Expectations for tighter monetary policy are now at their highest point since late 2022, while 40% of survey participants expect the Federal Reserve to raise rates over the next year.
Most respondents also expect Fed Chair Kevin Warsh to deliver a “hawkish hold” when policymakers conclude their latest meeting.
Portfolio Allocations Become More Defensive
Despite the optimistic outlook, investors made several adjustments to reduce risk exposure.
Global equity allocations were trimmed, technology positions were reduced and European stocks experienced their largest underweight positioning since late 2024.
In contrast, fund managers increased exposure to Japanese equities, banks and materials producers, while gold moved into the fair-value category for the first time in more than a year.
Inflation and AI Speculation Remain Key Risks
The survey identified inflation as the primary concern facing markets.
A potential “second wave inflation” scenario ranked as the top risk, while fears of an “AI bubble” remained firmly in second place.
Meanwhile, long positions in semiconductor stocks continue to dominate investor portfolios, with 80% of respondents describing the trade as overcrowded — the highest reading ever recorded by the survey.
Contrarian Investors May Find Opportunities Elsewhere
While investor enthusiasm remains elevated, Bank of America believes several overlooked areas could offer attractive opportunities.
The firm highlighted long-dated bonds, European equities and consumer-focused stocks as the most appealing contrarian trades as investors move into the summer period.
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