Global investors are flashing one of their strongest risk-on signals in years, a setup that contrarian Wall Street analysts have often described as fertile ground for near-term disappointment.
According to Bank of America's December Global Fund Manager Survey, cash allocations have “crashed” to a record low of 3.3%, while exposure to equities and commodities has climbed to the highest level since early 2022.
Bank of America’s chief investment strategist Michael Hartnett frames the move as a reflection of "run-it-hot" macro expectations, where investors increasingly believe growth can stay strong without meaningful economic pain.
BofA's Hartnett Says ‘Crash in Cash' Signals Peak Optimism Risk for Markets
That optimism is pervasive across the survey.
A combined 94% of fund managers now expect either a soft landing or no landing at all, while just 3% see a hard landing — the lowest reading in more than two years.
Profit expectations and global growth outlooks have both risen to their most bullish levels since August 2021, signaling that economic expectations are finally catching up with stock prices .
But Hartnett's work has long emphasized that markets tend to struggle when positioning becomes this one-sided.
BofA’s Sell Signal Almost Triggered: That’s Bad News For Stocks
That concern is reflected in Bank of America's Bull & Bear Indicator, which jumped to 7.9 in December, just a tad below Bank of America's formal sell signal.
According to Hartnett, this level suggests optimism has become stretched enough that "bullish positioning is the biggest headwind for risk assets."
Historically, readings near these levels have signaled crowded positioning and weaker forward returns, particularly when cash levels fall below 3.6%. Past data show that when cash dips this low, the MSCI ACWI – as tracked by the iShares MSCI World ETF (NYSE:URTH) – has averaged a negative 2% return over the following month.
Crowding is becoming increasingly visible across markets. The survey identifies "long Magnificent Seven" stocks as the most crowded trade for the second consecutive month, while gold ranks second.
Year-to-date, the Roundhill Magnificent Seven ETF (NYSE:MAGS) has rallied 20%, once again outperforming the broader Vanguard S&P 500 ETF (NYSE:VOO) which has returned 15%. Meanwhile, gold – tracked by the SPDR Gold Shares (NYSE:GLD) – has gained 63%, on track for the fund’s best year ever.
Latest fund flows and investor positioning data also indicate that global managers have rotated aggressively into U.S. equities, technology, and materials, while withdrawing capital from bonds, energy, and defensive sectors such as consumer staples.
AI Bubble Fears Remain
Despite the optimism, an AI-driven equity bubble remains the most frequently perceived tail risk, cited by nearly 40% of respondents.
Private credit and private equity are viewed as the most likely sources of a systemic credit event, followed closely by hyperscaler AI capex spending, a sign that leverage and concentration risks remain front of mind .
For Hartnett, the current data don't imply that markets must fall, but that upside may be increasingly limited when consensus becomes this one‑sided. In past cycles, similarly extreme agreement among managers has acted as a headwind rather than a tailwind for risk assets.
With cash nearly exhausted and optimism running hot, investors may find that confidence itself has become one of the market's biggest risks.
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