Fund managers hit record bullish levels as cash holdings trigger sell signal

Bank of America's latest Global Fund Manager Survey reveals professional investors are at their most optimistic since February, with cash levels falling to decade-low levels that have triggered a contrarian sell signal.

Sentiment Surges to Multi-Year Highs

The July survey of 211 fund managers representing $504 billion in assets under management showed investor sentiment most bullish since February 2025 on biggest surge in profit optimism since July 2020. The survey recorded a record surge in risk appetite over the past three months, marking a dramatic turnaround from the bearish sentiment that dominated earlier in 2025.

Cash levels fell to 3.9% triggering a 'sell signal', according to Bank of America strategist Michael Hartnett. This represents a 0.3 percentage point decline from the previous survey and marks the lowest cash allocation in more than a decade.

US Assets See Strongest Inflows Since December

The survey revealed the biggest jump in US equity allocations since December, with technology stocks experiencing their largest three-month allocation increase since March 2009, reflecting renewed confidence behind the AI thematic.

In parallel, allocations to European equities also spiked to the highest level in four years.

When asked about optimal use of corporate cash, 33% of managers said companies should increase capital expenditure, reaching a seven-month high and suggesting expectations for sustained business expansion.

Currency and Policy Expectations Shift

For the first time in the survey's history, shorting the US dollar emerged as the most crowded trade, indicating widespread expectations for dollar weakness. Fund managers expect the ultimate US tariff rate to reach 14%, up 2 percentage points from the previous month, reflecting anticipation of a more hawkish US trade regime.

Despite tariff concerns, recession expectations fell for the third consecutive month, with managers showing increased confidence in economic resilience.

Market Risks Remain Elevated

The top 'tail risk' is 'trade war triggers global recession' at 38%, down from 47% in June but still representing the primary concern among institutional investors.

Contrarian Signals Flash Warning

The dramatic decline in cash holdings has triggered Bank of America's contrarian sell signal, based on the theory that low cash levels indicate less dry powder available for future stock purchases.

However, Hartnett cautioned against expecting an immediate market retreat, noting that equity overweight positions haven't reached extreme levels and bond volatility remains low. The strategist suggested investors are more likely to engage in "summer of hedging and rotation" rather than aggressively lifting short bets or pivoting out of markets altogether.

Valuation Context

The survey's findings come as the S&P 500 has hit multiple record highs since late June, with the index benefiting from the renewed optimism captured in the fund manager sentiment data. This has pushed US valuations to extreme levels.

Despite potential valuation concerns, investment banks have been lifting their S&P 500 year-end targets.

Goldman Sachs raised its 12-month forecast for the S&P 500 from 6,500 to 6,900 earlier this month, citing lower bond yields and continued earnings momentum from the largest US companies. Similarly, Bank of America strategists raised their year-end target from 5,600 to 6,300, along with a 12-month target of 6,600.

The S&P 500 briefly crossed the 6,300 for the first time on record on Wednesday.