Bank of America survey: Investor cash levels fall below key threshold triggering stock market sell signal, potential AI bubble is the biggest tail risk.

A monthly survey by Bank of America showed that investors' cash positions have fallen below a key threshold, triggering a so-called stock market sell signal as concerns about overvaluation in tech stocks have intensified in the market. Bank of America strategist Michael Hartnett stated in a report that the average cash holdings of global fund managers have dropped to 3.7%, a situation that has only occurred 20 times since 2002. Historical data shows that every time this situation has occurred, the stock market has seen a decline in the following one to three months, while bonds have performed well. As concerns about a potential bubble in Artificial Intelligence (AI) stocks have escalated, signs of pressure have emerged in the MSCI Global Index, which has risen 17% so far this year. Meanwhile, the S&P 500 Index has fallen about 3% from its October peak. The Bank of America survey shows that investors' exposure to the stock market is still at its highest level since February. Michael Hartnett stated that if the Fed does not cut rates in December, the market will face "further adjustments." The strategist said that current positions pose a headwind rather than a tailwind for risk assets. The Bank of America survey also showed that the potential AI bubble is listed as the biggest tail risk, and investors are for the first time in twenty years concerned about corporations overinvesting. Additionally, about 42% of respondents expect international stocks to be the best-performing asset class next year, with only 22% believing that U.S. stocks will lead. This expectation aligns with the forecast of Goldman Sachs strategist Peter Oppenheimer, who accurately predicted earlier this year that U.S. stocks would underperform other global markets. Oppenheimer expects that over the next ten years, the S&P 500 Index will have an annualized return of 6.5%, the weakest among all regions; emerging markets are expected to be the strongest, with an annualized return of 10.9%. The Bank of America survey shows that the UK stock market is currently experiencing the most significant three-month decline in allocation since October 2022, reflecting cautious investor sentiment. Concerns about the UK economic outlook and the possibility of the Labour government announcing tax hikes and austerity measures in the November 26 budget are present. Moreover, UK interest rates remain higher than those in the Eurozone. With tech giants continuing to invest heavily in the field of Artificial Intelligence, investors are reassessing economic growth prospects, and the pressure on financial markets is increasing. JPMorgan Vice President Daniel Pinto warned that AI valuations need to be reassessed urgently, adding that any decline will have ripple effects in the stock market. Meanwhile, analysts who study the chart patterns of U.S. stocks have sounded the alarm, expressing concerns that recent declines could turn into a full-scale correction. It is reported that the S&P 500 Index experienced significant selling on Monday, with a drop of 3.2% since hitting a historic high on October 28. This is the largest decline for the index from a historic high since the crash from February to April. The index closed below its 50-day moving average for the first time in 139 trading days, breaking the second-longest record of trading above this trend line in this century. The index also fell more than 50 points below the 6725 level. Goldman Sachs senior trader Lee Coppersmith pointed out that this level could cause trend-tracking quantitative funds (CTAs) to switch from buyers to sellers. Like the S&P 500 Index, the Nasdaq also fell below its 50-day moving average, ending its longest streak of trading above the 50-day MA in 187 trading days since October 2, 1995. John Roque, head of technical analysis at 22V Research, stated that the Nasdaq has also sent some "bad" signals. He noted that among the approximately 3300 component stocks of the index, the number of stocks hitting 52-week lows exceeds those hitting new highs, indicating that there is a very low likelihood of further rebound in the market.