Bank of America Fund Manager Survey: Stock holdings hit a nearly five-year high, yet Hartnett says its time to pull out.

The latest global fund manager survey by Bank of America shows that bullish global investors have raised their stock positions to the highest level in nearly five years, with bearish investors being few and far between. The team of strategists led by Michael Hartnett reports that a net 56% of surveyed fund managers are overweight in stocks, marking the highest level since November 2021, while cash allocation has dropped to a very low 3.5%. The Hartnett team states, The market consensus believes that the macro economy will not land, the Federal Reserve will not raise interest rates, AI capital expenditure will not be cut, the Democrats will not have a sweeping victory, and bears will not gain the upper hand. However, they also warn that the current positioning signals continue to suggest that investors should retreat or rotate within risk assets rather than increase their positions, reiterating the viewpoint of shifting towards more defensive sectors recently. The Bank of America August global fund manager survey indicates that investor sentiment is very optimistic. This August survey reveals that investors expect the Federal Reserve will not raise interest rates before the midterm elections in November, and the Democrats will not achieve a sweeping victory that would disrupt the market rally. Fund managers generally believe that the economy will not show significant weakness, and companies that heavily invest in AI infrastructure will continue to increase their spending. Beneath the optimism lies hidden concerns. Since the S&P 500 index hit a historic closing high on August 13, cautious sentiment has quietly seeped into the stock market. Concerns over rising long-term bond yields are intensifying, reflecting investor worries about inflation and the debt-fueled AI boom. Additionally, U.S. President Trump has expressed no intention of extending the expired ceasefire agreement with Iran, which has led to another spike in oil prices. Bank of America conducted this survey from August 7 to 13, with 180 respondents managing a total of $525 billion in assets. Bank of America strategists pointed out that this is the third most optimistic monthly survey since 2022. AI: A coexistence of faith and fear. From the respondents' perspective, going long on global semiconductors remains the most crowded trade, although the level of congestion has significantly decreased from last month53% of respondents chose this trade, while in July, the figure was as high as 82%. Investors view the AI bubble as the biggest tail risk, while capital expenditure by mega-cap companies is seen as the most likely trigger for credit events. Despite this, a net 71% of respondents expect AI spending will not be cut this year, and 58% believe that AI technology will not have a substantial impact on the labor market until at least 2028. In terms of sector allocation, respondents increased their allocations to technology, banking, and energy sectors in August while reducing positions in industrials and healthcare and covering shorts in consumer staples and discretionary sectors. Moreover, a net 16% of respondents believe gold is undervalued, the highest proportion since March 2023; a net 39% believe the dollar is overvalued, rising from 34% last month.