Fund managers have started spending cache. Bank of America sees this as an alarming signal

Professional investors are increasingly putting cash into circulation, buying up stocks - and that's not necessarily good news for the market, Bank of America has warned. However, BofA is in no hurry to draw conclusions about the end of the US Wall Street rally: it is harder for traders to suppress greed than fear.

A fresh survey of fund managers by BofA found the lowest level of cash in their portfolios in more than a decade - 3.9% of total assets under management, reports CNBC. Managers have been building stakes in technology and commodities stocks amid a series of record highs for the S&P 500 since late June.

What's happening suggests that the behavior of most market participants may be misguided and signals potential problems, BofA investment strategist Michael Hartnett warned his clients. His logic is simple: when the cache is nearly depleted, there are fewer available resources for new purchases - meaning the major wave of demand may be behind us.

"Investor sentiment is the most bullish since February 2025 amid the biggest surge in earnings optimism since July 2020 and a record increase in risk appetite over the past three months; cash levels have fallen to 3.9%, activating a sell signal," CNBC quoted Hartnett in a research note.

The BofA economist is in no hurry to declare that the value of U.S. stocks has reached a ceiling. "Since the skew toward stocks [in investment portfolios] is not yet critical, bond market volatility remains low, and greed is always harder to suppress than fear, investors are likely to stick to a strategy of summer hedging and rotation rather than opening large-scale shorts or exiting the market,"

A BofA survey has found that uncertainty surrounding the trade policies of the US and its key trading partners could once again prompt fund managers to build up cash holdings. "Investors see the threat of a global recession due to a trade war as the top 'tail risk' (a rare but highly disruptive event at the 'tail' of the probability distribution - Oninvest) - cited by 38% of respondents," wrote Hartnett.

The U.S. stock market's surprising recovery since early April  - it took the S&P 500 less than three months to push off its April bottom and hit an all-time high - largely reflects Wall Street's bet that U.S. President Donald Trump will not enact his duties. However, it is the market's resilience that could spur Trump to take further action - and that could backfire on stocks in both the U.S. and Europe, accounts Reuters financial columnist Jamie McGeever.

Nevertheless, most analysts still believe that common sense will prevail, McGeever notes. According to Barclays, Trump's tolerance for stress in equity markets - and thus economic hardship in the U.S. - is limited. But if investors have indeed become overconfident, and Trump does impose 30 percent duties on goods from the EU, the possible retaliatory measures risk triggering a new stock market crash. European stocks could then fall by double-digit percentages, Barclays warned.

BlackRock remains overweight U.S. equities, but doesn't rule out sharp market swings in the short term. "Uncertainty over who will bear the cost of duties means increased dispersion in returns - and more opportunity for alpha, i.e., returns above the benchmark," wrote BlackRock Investment Institute analysts on July 14. According to their opinion, there are two ways to achieve excess returns: through tactical global risk management or by selecting specific "winning" securities.

This article was AI-translated and verified by a human editor