Global investors are plunging into a state of "extreme greed," with market sentiment surging to its highest level since mid-2021. According to the latest global fund manager survey from Bank of America, as fund managers aggressively chase risk assets, cash levels in portfolios have plummeted to a record low, with the market broadly betting on a "no landing" scenario for the global economy. The survey released by Bank of America on January 20th indicates a decisive shift in the barometer of macro expectations; for the first time in three years, "no landing" has replaced "soft landing" as the baseline expectation for investors. This extreme optimism has propelled Bank of America's "Bull & Bear Indicator" to soar to 9.4, a level signaling "extreme bullishness," which is often interpreted as a contrarian sell signal.
Driven by robust risk appetite, equity allocations have surged dramatically, while the demand for hedging protection against stock market declines has collapsed to its lowest point since January 2018. Notably, despite the euphoric risk sentiment, "Long Gold" has unexpectedly surged, replacing tech stocks as the most crowded trade, revealing that while chasing returns, capital remains highly vigilant towards geopolitical risks. According to reports from Bloomberg and Bank of America, this survey was conducted from January 8th to 15th, involving 227 fund managers overseeing total assets of $646 billion. The results paint a picture of a market flush with liquidity and brimming with confidence, yet increasingly sensitive to potential shocks due to the disappearance of defensive buffers. The establishment of a "no landing" consensus marks a fading concern over recession. Optimism on the macro level is the core driver of this survey. It shows that a net 38% of investors expect the global economy to strengthen over the next 12 months, the highest proportion since July 2021. More critically, 49% of investors now believe "no landing" (strong economic growth without a full return of inflation to target) is the most likely outcome, surpassing the probabilities for both "soft landing" and "hard landing" for the first time. Concurrently, fears of an economic recession have frozen to an absolute minimum. A mere 9% of respondents foresee a potential global recession in the next 12 months, the lowest level since January 2022. Conversely, the proportion of investors expecting a "boom" (i.e., above-trend growth and above-trend inflation) has risen to 34%, hitting the highest record since September 2021. Investor expectations for corporate profits have also improved, with a net 44% of respondents anticipating growth in global earnings.
Cash allocations hit a historic low, leaving defense mechanisms exposed. Driven by "fear of missing out" (FOMO), investors are deploying their capital at an unprecedented pace. The Bank of America survey reveals that fund managers' cash levels have dropped further from 3.3% last month to 3.2%, setting a new all-time low. Meanwhile, the bank's Financial Market Stability Risk indicator does not show signs of excessive stress, further encouraging risk-taking behavior. This rampant optimism has led to a full-scale retreat from defensive positions. A net 48% of investors report having no hedge against a significant equity market decline, the highest proportion in eight years. Investors widely perceive current liquidity conditions as exceptionally favorable, with a net 66% of respondents giving positive assessments of market liquidity, the best level since the peak of the Federal Reserve's quantitative easing (QE) policy in September 2021.
Equity allocations soar, with bank stocks in high demand. Regarding asset allocation, investors' net overweight position in equities increased by 6 percentage points to a net 48% overweight, the highest level since December 2024. In contrast, bond allocations fell sharply to a net 35% underweight, the lowest since September 2022. In terms of sector rotation, capital is flowing from defensive sectors to cyclical ones. Bank stocks have become the most overweighted sector globally, with a net overweight of 34%. This stands in stark contrast to the consumer staples sector, which is being heavily sold off, with a net underweight of 30%, the lowest point since February 2014. The degree of overweight in bank stocks relative to consumer staples has reached a historical high, underscoring the market's aggressive bet on economic growth prospects. Regionally, investors are not uniformly bullish on U.S. stocks. The survey shows that allocations to U.S. stocks decreased to a net 3% underweight, while Eurozone equities (net 25% overweight) and emerging market stocks (net 40% overweight) are more favored, indicating that capital is seeking more attractive valuations across the globe. "Long Gold" becomes the most crowded trade, geopolitical risk tops concerns. Despite the market being filled with risk appetite, the safe-haven asset gold is experiencing unusual crowding. 51% of investors identify "Long Gold" as the most crowded trade currently, a figure that has risen significantly from the previous month, displacing the long-standing leader "Long U.S. Magnificent Seven" (which fell to 27%).
This phenomenon reflects a subtle contradiction in investor psychology: extreme optimism about economic growth on one hand, and underlying unease about potential tail risks on the other. The survey indicates that "geopolitical conflict" is now viewed as the biggest tail risk (28%), surpassing "AI bubble" (27%) and "disorderly rise in bond yields." As a cautionary note, a net 45% of investors believe gold is currently overvalued, a proportion matching the all-time high record set in May 2025.
U.S. midterm elections and Federal Reserve leadership expectations. In the realm of politics and policy, investors' baseline expectation for the 2026 U.S. midterm elections is a "divided Congress." 60% of respondents anticipate Democrats will control the House of Representatives, while Republicans will control the Senate. Regarding the future leadership of the Federal Reserve, the market has also formed clear expectations. 44% of investors expect Kevin Hassett to be nominated as the next Fed Chair, although this proportion has decreased from the previous month. Kevin Warsh and Christopher Waller follow with support rates of 19% and 6%, respectively. For the AI sector, despite being the second-largest source of tail risk, 55% of investors still believe AI stocks are not currently in a bubble.
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