Investors are so bullish on stocks that they are allocating record low cash

A closely watched survey of global fund managers recorded the lowest cash allocations this month, underscoring a rally in stocks as the stock market nears the end of a strong year.

The average level of cash allocation among participants in Bank of America’s Global Fund Manager Survey weakened to 14%, the bank said on Tuesday. The firm said it was the largest unweighted position for the currency against equities since at least 2001, when the survey began.

Simply put, the data “shows super bullish sentiment,” investment strategist Michael Hartnett wrote to clients on Tuesday.

He cited a “proper” Federal Reserve interest rate cut and growth expectations under President-elect Donald Trump as reasons for the rush to stocks.

For the former, traders will read the Fed’s thinking on Wednesday when the central bank presents its final interest rate decision for the year later in the afternoon. Fed funds futures at more than one price 95% probability According to the CME FedWatch Tool, the central bank lowers the cost of borrowing at its policy meeting.

The 14% net underweight in cash represents a significant turnaround from November’s 4% net overweight reading. That 18 percentage point drop in cash allocations was the biggest monthly drop in nearly half a decade, according to Bank of America data.

Moreover, the average cash level of managers surveyed fell from 4.3% of assets under management to 3.9%, a new low by June 2021.

It marked the second time in three months that the level has fallen below the key 4% mark, which Hartnett said triggered a contrarian sell signal. This comes from the idea that with a heavy concentration in stocks, there isn’t much money left to drive the market up. Holding cash can be considered a safe bet for investors who want to keep their assets on the sidelines when there is expected volatility.

It comes as Wall Street braces for more gains for stocks in 2025 after a year that has so far beaten expectations. It suggests an average target of market strategists S&P 500 According to CNBC, it will rise just over 10% between Monday’s close and the end of 2025. exclusive request For Pro subscribers.

But if next year is anything like 2024, it could be one a significant underestimation. As of midday Tuesday, the broad index is eyeing a 2024 gain of more than 26% to about 6,050. Entering this year, the most bullish strategist on the Street expected the index to end 2024 at just 5,200.

Despite the strength this year, stocks took their last breath. It should be noted that the Dow Jones Industrial Average is on the way to increasing its level longest daily losing streak From the 1970s.

More than 170 participants responded to Bank of America’s December survey, one of the most-watched measures of investors. The group includes people with titles including chief investment officer and portfolio manager, among others.