Here's an uncomfortable truth about investing: when everyone agrees something is a good idea, it usually stops being one pretty quickly. And right now, according to Bank of America's latest fund manager survey, basically everyone agrees that stocks are going up.
Cash allocations among global investors just crashed to 3.3%, the lowest on record. Meanwhile, exposure to equities and commodities has climbed to levels not seen since early 2022. This is what Wall Street calls "risk-on," and it's about as risk-on as it gets.
Michael Hartnett, Bank of America's chief investment strategist, sees this as a textbook case of "run-it-hot" expectations. Investors have convinced themselves that economic growth can keep rolling without any real pain. Which sounds great, until you remember that markets don't reward consensus, they punish it.
The Optimism Is Everywhere
The survey data reads like a victory lap. A whopping 94% of fund managers expect either a soft landing or no landing at all. Just 3% see a hard landing coming, the lowest reading in over two years. Profit expectations and global growth outlooks have both surged to their most bullish levels since August 2021.
Translation: people think everything's fine, the economy's strong, and stocks should keep climbing. But here's where it gets interesting. Hartnett has spent years documenting what happens when positioning gets this one-sided, and it's not pretty.
When Everyone's In, Who's Left to Buy?
Bank of America's Bull & Bear Indicator jumped to 7.9 in December, hovering just below the firm's formal sell signal threshold. According to Hartnett, this means "bullish positioning is the biggest headwind for risk assets." When everyone's already bought in, there's nobody left to push prices higher.
The historical data backs this up. When cash levels drop below 3.6%, the MSCI ACWI—tracked by the iShares MSCI World ETF (URTH)—has averaged a negative 2% return over the following month. That's not catastrophic, but it's not exactly what you want to hear when sentiment is this stretched.
The crowding is visible everywhere. For the second straight month, "long Magnificent Seven" stocks topped the list of most crowded trades, with gold taking second place. Year-to-date, the Roundhill Magnificent Seven ETF (MAGS) has rallied 20%, outpacing the Vanguard S&P 500 ETF (VOO), which returned 15%. Gold, tracked by SPDR Gold Shares (GLD), has absolutely crushed it with a 63% gain, on track for the fund's best year ever.
Meanwhile, flows tell the same story. Global managers have piled aggressively into U.S. equities, technology, and materials, while dumping bonds, energy, and defensive sectors like consumer staples. Everyone's positioned for growth and risk, which is fine until it's not.
The AI Bubble Question Looms Large
Despite all the optimism, investors aren't completely blind to risk. An AI-driven equity bubble remains the most frequently cited tail risk, with nearly 40% of respondents flagging it as a concern. Private credit and private equity are seen as the most likely sources of a systemic credit event, followed closely by hyperscaler AI capex spending. Leverage and concentration risks are still very much on people's minds, even if they're not acting like it.
Hartnett's point isn't that the market has to crash tomorrow. It's that when everyone's leaning the same direction, the upside gets capped. In past cycles, this kind of extreme agreement among fund managers has acted as a brake on returns rather than fuel for further gains.
With cash balances scraped down to nothing and optimism running white-hot, the irony is almost poetic: confidence itself might be the biggest risk facing investors right now. When everyone's all-in, there's not much room left to get more all-in.
