The Wall Street Bull Statue in Manhattan, New York.
Carlo Allegri | Reuters
A closely watched survey of global fund managers recorded its lowest cash allocation on record this month, underscoring an optimism in stocks as the stock market nears the end of a strong year.
The average cash allocation level of participants in Bank of America’s Global Fund Manager Survey fell to a 14% underweight, according to data released by the bank on Tuesday. It is the largest underweight position in currencies compared to stocks since at least 2001, when the survey began, the firm said.
Simply put, the data “shows super bullish sentiment,” investment strategist Michael Hartnett wrote to his clients on Tuesday.
He cited interest rate cuts by a “docile” Federal Reserve and growth expectations under President-elect Donald Trump as driving the rush into stocks.
For the former, traders will get a read on the Federal Reserve’s thinking on Wednesday, when the central bank delivers its final interest rate decision for the year in the afternoon. Fed funds futures are pricing in more than 95% probability The central bank is expected to reduce borrowing costs at the policy meeting, according to the CME FedWatch tool.
That 14% net underweight statistic in cash marks a significant change from the 4% net overweight reading in November. This 18 percentage point drop in cash allocation was the largest monthly drop in about half a decade, according to Bank of America data.
What’s more, the average cash level of the managers surveyed fell to 3.9% from 4.3% of assets under management, reaching a new low dating back to June 2021.
This was the second time in the last three months that this level fell below the key 4% mark, which Hartnett said triggers a contrarian sell signal. This stems from the idea that with a heavy concentration in stocks, there isn’t much cash left to drive the market higher. Holding cash can be considered a safe bet for investors who want to keep assets on the sidelines if volatility is expected.
This comes as Wall Street braces for more stock gains through 2025 after a year that has so far far exceeded expectations. The average objective of market strategists suggests the S&P 500 will rise just over 10% between Monday’s close and the end of 2025, according to CNBC exclusive survey for Pro subscribers.
However, if next year shapes up to be 2024, that could be a substantial understatement. At midday Tuesday, the broad index was aiming to end 2024 up more than 26% to nearly 6,050. Looking ahead to this year, the most bullish strategist on the street expected the index to end 2024 at just 5,200.
Despite this year’s strength, stocks have taken a breather recently. In particular, the Dow Jones Industrial Average is on track to reach its Longest daily losing streak since the 1970s.
More than 170 participants responded to questions in Bank of America’s December survey, which is one of the most closely followed investor metrics. The group includes people who hold titles such as investment director and portfolio manager, among others.
