BofA Fund Manager Survey: Extreme Bullishness Raises Risk for Global Markets

Bank of America’s December Fund Manager Survey (FMS) shows global investors are the most bullish they have been in the past three and a half years. While optimism is strong, the data also signals rising risks for equities and other risk assets.

Bull & Bear Indicator Nears Sell Signal

BofA’s Bull & Bear Indicator has climbed to 7.9, close to the bank’s official “sell signal.” According to BofA, current positioning has become a major headwind for risk assets, as markets are already heavily priced for good news.

Most Crowded Trades: Magnificent 7 and Gold

The survey shows extreme concentration in a few popular trades:

• Long Magnificent 7 stocks is the most crowded trade, chosen by 54% of respondents.
• Long gold ranks second, backed by 29% of fund managers.

Such crowded positioning increases the risk of sharp corrections if sentiment shifts or earnings disappoint.

Why Investors Are So Bullish

Global investors’ optimism is being driven by expectations of a “run-it-hot” macro environment. Fund managers are betting on supportive government policies, resilient growth, and continued momentum in risk assets despite elevated valuations.

Biggest Risks Identified by Fund Managers

Despite strong optimism, investors remain aware of major downside risks:

• AI bubble risk remains the top tail risk for markets.
• A disorderly rise in bond yields is the second-largest concern.

Both risks could tighten financial conditions and pressure equity valuations globally.

Cash Levels at Record Lows

Cash allocations have fallen to a record low of 3.3%, down from 3.7% previously. At the same time, allocations to stocks and commodities are at their highest level since February 2022.

Low cash levels suggest investors are fully invested, leaving limited room to buy dips if markets turn volatile.

What This Means for Investors

BofA’s survey suggests markets are priced for near-perfect outcomes. While momentum remains strong, extreme bullishness, crowded trades, and low cash buffers increase downside risks. For Indian and global investors, risk management and diversification may become increasingly important in the months ahead.

Source: Bank of America Global Fund Manager Survey, December.