Fund managers cut cash holdings to 3.9%, triggering a sell signal amid peak bullish sentiment and earnings optimism.
Bank of America issued a warning that US equities may face a summer selloff after fund manager cash allocations fell to 3.9%, the lowest level since February 2024. The drop triggered a technical sell signal, historically associated with market declines averaging 1 percent over the past 15 years.
Investor sentiment reached a three-month high, driven by strong earnings growth expectations, while only 16% of respondents anticipate Federal Reserve rate hikes in the next year. Despite this, two-year Treasury yields at 4.1% suggest potential hikes remain on the table, with nearly two-thirds of managers expecting 30-year yields to hit 6%.
The survey also revealed extreme positioning, with commodities overweight at record highs and bonds underweight at levels last seen in June 2022. Long global semiconductors emerged as the most crowded trade, while inflation was cited as the biggest tail risk.