The Wall Street bull statue is pictured in Manhattan, New York.
Carlo Allegri | Reuters
A closely watched survey of global fund managers registered its lowest cash allocation on record this month, underscoring a bullishness on stocks as the equity 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 14% underweight, according to data released by the bank on Tuesday. That is the largest underweight position for currency compared with stocks since at least 2001, when the survey began, the firm said.
Put simply, the data “shows super-bullish sentiment,” investment strategist Michael Hartnett wrote to clients on Tuesday.
He cited interest rate cuts from a “compliant” Federal Reserve and expectations for growth under President-elect Donald Trump as drivers of the rush into stocks.
For the former, traders will get a reading of the Fed’s thinking on Wednesday when the central bank delivers its final interest rate decision of the year in the afternoon. Fed funds futures are pricing in a more than 95% likelihood that the central bank lowers the borrowing cost at the policy gathering, according to the CME FedWatch Tool.
That stat of net 14% underweight on cash marks a significant turn from the 4% net overweight reading in November. This 18 percentage-point drop in cash allocation was the largest monthly decline in around half a decade, according to Bank of America data.
What’s more, the average cash level of surveyed managers fell to 3.9% from 4.3% of assets under management, hitting a new low going back to June 2021.
That marked 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 push the market higher. Holding cash can be considered a safe bet for investors who want to keep assets on the sidelines if there is expected volatility.
This comes as Wall Street readies for more gains for stocks into 2025 after a year that has, thus far, well exceeded expectations. The average target of market strategists suggests the S&P 500 will climb just over 10% between Monday’s close and the end of 2025, according to CNBC’s exclusive survey for Pro subscribers.
However, if the incoming year shapes up to look like 2024, that could be a substantial underestimation. As of midday Tuesday, the broad index is tracking to end 2024 up more than 26% at nearly 6,050. Heading into this year, the most bullish strategist on the Street had expected the index to finish 2024 at just 5,200.
Despite the strength this year, equities have taken a recent breather. Notably, the Dow Jones Industrial Average is on track to notch its longest daily losing streak since the 1970s.
More than 170 participants responded to Bank of America’s December survey questions, which is one of the most widely followed gauges of investors. The group includes people who hold titles including chief investment officer and portfolio manager, among others.