Bull statue on Wall Street in Manhattan, New York.
Carlo Allegri | Reuters
A closely watched survey of global fund managers recorded the lowest cash allocations on record this month, underscoring the bullish trend in stocks as the stock market approaches the end of a strong year.
The average cash allocation level of participants in a Bank of America Global Fund Managers Survey fell to underweight by 14%, according to data released by the bank on Tuesday. The company said this was the largest drop in the currency's weight compared to stocks since at least 2001, when the survey began.
Simply put, the data “shows very bullish sentiment,” Michael Hartnett, an investment strategist, wrote to clients on Tuesday.
He pointed to “consistent” Fed rate cuts and growth expectations under President-elect Donald Trump as drivers of the rush into stocks.
As for the former, traders will get a read on the Fed's thinking on Wednesday when the central bank issues its final interest rate decision for the year in the afternoon. Federal Reserve funds futures are priced at over 95% probability The central bank is cutting the cost of borrowing at its policy meeting, according to the CME FedWatch tool.
This figure of 14% net underweight represents a significant turnaround from the 4% net overweight reading in November. This 18 percentage point decline in cash allocations was the largest monthly decline in about half a decade, according to Bank of America data.
Furthermore, the average cash level of managers surveyed fell to 3.9% from 4.3% of assets under management, reaching a new low dating back to June 2021.
This is the second time in the past three months that this level has fallen below the key 4% level, which Hartnett said triggers a conflicting sell signal. This stems from the idea that with so much focus on stocks, there won't be much money left to push the market higher. Holding cash can be considered a safe bet for investors who want to hold assets on the sidelines if there is expected volatility.
This comes as Wall Street braces for further gains for stocks through 2025 after a year that has exceeded expectations so far. The average target of market strategists refers to… Standard & Poor's 500 It will rise just over 10% between Monday's close and the end of 2025, according to CNBC. Exclusive survey For professional subscribers.
However, if next year looks like 2024, it could be a year Big underestimation. As of midday Tuesday, the overall index is heading towards the end of 2024 with a rise of more than 26% at approximately 6,050 points. Going into this year, the most optimistic strategists on the Street were expecting the index to end 2024 at just 5,200.
Despite their strength this year, stocks took their last breath. It is worth noting that the Dow Jones Industrial Average is on the right track to reach its level Longest daily losing streak Since the 1970s.
More than 170 respondents responded to questions in Bank of America's December survey, which is one of the most widely followed metrics by investors. The group includes people with titles including chief investment officer and portfolio manager, among others.
