Global investors are feeling pretty good about stocks, maybe a little too good. Bank of America's latest Fund Manager Survey shows the most bullish positioning since 2021 – with surging optimism, low cash levels, and hedging like it is Donald Trump's first term.
The survey, conducted between January 9 and January 15, included 196 participants managing a combined $575 billion in assets. Notably, it happened before fresh geopolitical tensions flared over Greenland and renewed tariff threats.
Numbers showed that 38% of respondents expect stronger global growth, while recession fears have dropped to a two-year low. Equity allocations climbed to their highest level since December 2024, with 48% of fund managers saying they're overweight stocks.
All of that pushed BofA's widely watched Bull & Bear Indicator up to 9.4 — firmly in "hyper-bull" territory. Historically, that's the zone where sentiment is so stretched that markets tend to become vulnerable to negative surprises.
In BofA's framework, such a level signals extreme optimism, crowded positioning, and very little protection. In other words, investors are all-in, with few safety nets. Nearly half of respondents said they have no protection against an equity correction, the highest share since January 2018. Cash levels have dropped to a record low of 3.2%, leaving investors with very little dry powder if markets wobble.
Late-Cycle Hedging Aversion
Bank's Chief Investment Strategist Michael Hartnett called out the collapse in hedging as particularly striking.
"Low levels of stock market hedging are irrelevant in a world of positive surprises," Hartnett said, according to Bloomberg. "But it matters greatly if surprises suddenly turn greatly," he added.
That's interesting — and risky — given how long the AI-fueled tech rally has already been running.
History offers some perspective. Hartnett has studied 10 major equity bubbles since 1900 and found they lasted about 2.5 years on average from trough to peak. The current AI-driven rally is now in its third year.
That fact doesn't mean it has to end tomorrow. On the contrary, Hartnett warns that the final phase of the bubble often is the strongest. History only suggests that the easy part of the trade may be behind us.
Breadth Has Seen Worse
Another concern is the concentration risk. Market breadth remains narrow, with gains coming from a handful of mega-cap tech stocks. By the end of 2025, technology alone accounted for about 35% of the S&P 500. Even if you broaden the definition to include communication services and tech-adjacent consumer discretionary names like Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA), the total comes in a bit over 40%.
That sounds extreme, but history has seen worse. In the 1930s and 1960s, market concentration reached similar levels. And in 1900, during the railroad boom, rail stocks made up an astonishing 63% of total U.S. market value. Thus, today's tech dominance is significant, but not unprecedented.
Yet, with investors fully allocated, lightly hedged, and heavily concentrated, it doesn't take much to topple over. BofA survey suggests markets may be far less prepared for a shock than they appear on the surface.
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