Investor sentiment toward equities has surged to its most bullish level since February, but warning signs are emerging beneath the optimism. According to Bank of America’s October Global Fund Manager Survey, 54% of respondents believe AI-related assets are in a bubble, while 60% consider global equities to be overvalued — the highest reading on record.
The survey showed that equity allocations have climbed to their highest point in eight months, while exposure to bonds has dropped to its lowest since late 2022. Cash holdings have fallen to 3.8%, reflecting heightened risk-taking, and investors view liquidity conditions as the best since September 2021.
Recession fears have sharply diminished, with expectations for a soft landing rising to 54%. Optimism about growth has posted its strongest six-month increase since 2020, fueling overweight positions in commodities — now at their highest level since early 2023 — and a surge in exposure to emerging-market equities, the highest since 2021. Cash, by contrast, is at its most underweight level since late 2024.
Amid the upbeat positioning, valuation concerns are gaining traction. “AI was cited as the top perceived tail risk, overtaking inflation and geopolitics,” the report highlighted. “Long gold” was named the most crowded trade.
“A 2nd wave of inflation (27%), ‘Fed loses independence & US dollar debasement’ (14%), complete the podium of the biggest tail risks this month,” wrote BofA strategist Michael Hartnett. He also pointed out that trade war fears have “eased significantly since peaking in April,” when 80% of respondents identified them as the primary risk.
Although positioning appears stretched, many investors believe the risk-reward trade-off remains favorable. Private credit was cited as the most likely source of a systemic event, signaling potential vulnerabilities under the surface.
Despite rising caution, positioning does not yet indicate a defensive turn. Contrarian signals flagged in the survey include long positions in bonds versus short positions in equities and a rotation back into staples from financials.
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