The optimism of fund managers in the world is at a peak – and this may be a bad sign for the markets

The survey took place between December 5 and December 11, and was based on responses from 203 participants who manage assets in the aggregate amount of 569 billion dollars. Michael Hartnett, the investment bank’s chief market strategist, noted that “the broadest index of sentiment in the survey of fund managers, based on cash levels, capital allocations and expectations for global growth, rose from 6.4 to 7.4 – the highest level since July 2021.”

The survey also showed that 57% of fund managers expected the global economy to cool, while only 3% believed the economy was on the brink of a recession – an all-time low for this figure. 37% of managers do not expect the economy to slow down at all. On top of that, expectations for growth in corporate profits rose to a four-year high.

close to “sale” signal

One of the most significant indicators in the survey, conducted since 1999, estimates the level of free cash among fund managers. In a document published by the Investment Bank, under the title “The Crash in Cash”, it was stated that the level of cash dropped in December to 3.3% – an all-time low. To put the data into context, this is a lower level than that recorded at the peak of the dot-com bubble in 2000, as well as that recorded at the peak of the subprime bubble in 2008.

Elias Gallou, a senior strategist at Bank of America, commented on the data and told Bloomberg that “this is a very bearish contrarian marker”. Contrarian indicators are those that signal that it may be a good time to go against the herd.

Gallo added that “over the past 25 years, in cases where the level of cash has dropped to 3.6% or below, the average return on the world’s stock markets in the following four weeks was minus 2%, and in the following eight weeks it remained unchanged.”

Accordingly, the Bull & Bear index of the investment bank, another contrarian indicator that assesses investor sentiment according to a wide range of criteria, stood at 7.9 points – a level that the bank considers a “sell” signal. Yahoo Finance reported that the last time the indicator signaled a “sell” was on October 1, when the index entered “extreme bullish” territory and rose to a record high of 8.9 points. Bank of America noted that the same signal – which can be valid between one and three months – preceded the shake-up recorded at the beginning of November, when the S&P 500 shed about 4% of its value and finally ended the month stably.

Stephen Strazza, a technical analyst at All Star Charts, previously explained to the Wall Street Journal that “the market is built to fool most people most of the time. This is the basis of contrarian indicators. Most of these indicators work best when they are at extreme levels.”

On this occasion, it is worth noting that Bank of America’s forecast for the S&P 500 index in 2026 was among the gloomiest among the major investment banks, with an expectation of 7,100 points by the end of 2026 – that is, an upside of a little more than 4% in relation to its current price.

Among other things, the bank warned as part of the forecast that, looking ahead, an “air pocket” is expected in the field of AI. According to him, while the (relatively low) market breadth and high earnings multiples “rhyme with the year 2000” – when the dot-com bubble burst – today’s environment is different because allocations to stocks are at a lower rate, earnings growth is supportive and speculation is less extreme. At the same time, the bank warned that the ability of AI to produce a return on investments will only become clear later, because computing power is a bottleneck of the industry, while the cash flow of companies designed to cover the huge expenses of AI is running out.