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 allocations sank toward historic lows and almost no one positioned for a Federal Reserve rate hike or an economic slowdown. The monthly poll of professional allocators is one of the most closely watched barometers of institutional sentiment, and because its respondents control real portfolios, it captures allocation decisions rather than opinions alone.

Cash at near-record lows, equities at multi-year high

The August survey, which drew responses from around 180 managers responsible for more than half a trillion dollars in assets, showed cash allocations falling to 3.5 percent of assets under management — among the lowest levels recorded since the survey began tracking the metric in 1998. The decline was steep 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. The rule is contrarian by design: cash buffers this thin mean managers are close to fully invested, leaving little idle money to deploy into the market — the condition BofA associates with optimism that is already reflected in prices rather than waiting to be acted on.

At the same time, global equity allocation climbed to a net 56 percent overweight — the balance of managers who are overweight equities against those who are underweight — the highest level since November 2021 and the fourteenth consecutive month that managers have held an overweight equity position.

Growth confidence and Fed expectations

Underpinning the optimism is a striking degree of confidence in the economic outlook. A record 56 percent of respondents said they expect no economic 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 in which investors see little risk from growth, Federal Reserve policy, artificial intelligence spending or the political calendar, with the survey noting that current positioning favours rotating within risk assets rather than adding fresh exposure.

On monetary policy, roughly 72 percent of respondents — nearly three quarters — do not expect Fed Chair Kevin Warsh to raise interest rates before the November midterm elections. Just under a third anticipate a hawkish tone from him at the upcoming Jackson Hole symposium, the annual gathering of central bankers and economists hosted by the Kansas City Fed in Wyoming that has historically served as a stage for framing the Fed's policy thinking. Most managers instead expect a neutral message. Opinion was more divided on the market impact of a clean Democratic sweep in the midterms — an outcome that would hand the party unified control of Congress — though a narrow majority still expect equities to fall in that scenario.

Rotation within tech, AI bubble tops tail risks

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 — the position respondents most often single out as over-owned — but the share of managers flagging it as such eased sharply, falling from over 80 percent a month earlier to close to half — a drop that suggests some rotation has already occurred within technology rather than a wholesale reduction in risk appetite.

Concerns about an AI bubble persist as the most cited tail risk among survey respondents, and hyperscaler capital spending — the outlays of the largest cloud and AI infrastructure companies — was named the most likely source of a systemic credit event, even though most managers do not expect any hyperscaler to cut spending this year.

In the survey's valuation readings, gold is now seen as the most undervalued asset since March 2023, while bonds stand out as a crowded underweight. Separately, China's Securities Daily has warned against chasing gold at current highs.

Stretched positioning the near-term vulnerability

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 contrarian signals embedded in the survey — gold's status as the most undervalued asset 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.

For August, the survey's contrarian trade ideas 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. The near-term checkpoints are already on the calendar: Warsh's Jackson Hole appearance, the November midterm results, and the next monthly survey instalments, which will show whether cash allocations rebuild from levels that currently have the Cash Rule triggered.