Cash at 3.5% and equity allocations at a five-year high show fund managers have rarely been this confident about stocks.
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Fund managers turn most bullish since 2021 as cash hits 3.5%
Fund managers cut cash to 3.5% and pushed global equity allocations to a net 56 overweight in August, the most bullish reading since November 2021, Bank of America's monthly survey shows.
The composite sentiment index, which tracks cash levels, equity allocation and growth expectations, is the third-highest reading since 2022, according to the survey of 180 panellists managing $525 billion in assets.
Cash at 3.5% is the lowest since February and the sixth-lowest since the survey began in 1998. A net 37% of respondents expect double-digit earnings growth over the next 12 months, the most since August 2021. A record 56% expect a "no landing" scenario as central banks tackle inflation, while 34% expect a soft landing — the lowest share since April 2025. When asked whether the Federal Reserve will hike before US midterms, 72% said no.
The bullishness carries risks. The top concern remains an AI bubble, cited by 32% of respondents, down from 45% in July. A disorderly rise in bond yields is the second-largest fear at 27%, overtaking a second wave of inflation at 25%. The survey was conducted between 7 and 13 August.
US equities saw their overweight increase for a second straight month to a net 27%, the highest since December 2024. Investors also trimmed underweights in consumer discretionary (net 12%, down from 22% in July) and staples (19% versus 32%). The rotation into cyclical and consumer names reflects growing confidence that the economy can avoid a hard landing, even as growth expectations softened from last month.
Semiconductors stay crowded as energy draws inflows
Long global semiconductors remains the most-crowded trade at 53%, though that is down sharply from the record 82% in July. Short Japanese yen is the second-most crowded trade, even after US intervention to support the currency. The yen trade has been a persistent favorite among hedge funds, and the US Treasury's intervention has done little to deter positioning.
The biggest shift was into energy, where investors expect Brent crude to trade at $76 per barrel by year-end, up from July's $71 forecast. Energy remains a small net underweight despite the move, suggesting managers are positioning for higher oil prices without fully committing to the sector.
Bonds, UK stocks and consumer staples remain the most underweighted positions, while emerging markets, banks and tech lead the most common overweights. The divergence between overweight tech and underweight staples shows investors are still favoring growth over defensives, a classic late-cycle posture.
These positioning shifts carry implications for market direction. With cash at 3.5%, managers have limited dry powder to deploy if equities stumble. The last time cash levels were this low, in February, the S&P 500 subsequently pulled back before resuming its advance. The survey's record "no landing" expectations suggest investors are betting the Fed can hold rates without triggering a recession — a view that leaves little room for disappointment in upcoming inflation data.
AI capex cuts and the midterm election
Some 71% of respondents do not expect one of the AI hyperscalers to announce a capex cut this year, up from 61% in July. Just 21% expect a cut from one of the tech giants. AI hyperscaler capex is viewed as the most likely source of a systemic credit event, and the declining share of investors expecting a cut suggests confidence in the AI buildout remains intact.
Looking ahead to US midterm elections, investors expect no Democratic sweep. Expectations for a Democratic house and Senate fell to 23% from 27%. In a split scenario, 37% of investors expect bond yields to rise and stocks to fall, while 17% expect bond yields down and stocks up. Just 9% expect a "boom" scenario in which both bond yields and stocks rise.
On the economy, a net 14% expect stronger growth in the next year, down from 21% last month. Around 49% expect stagflation — below-trend growth and above-trend inflation — while 43% expect a boom, the highest reading for that scenario since February 2022. The shift toward a boom scenario, combined with record "no landing" expectations, suggests investors see the Fed's inflation fight as largely won.
This article is for informational purposes only and does not constitute investment advice.
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