The Wall Street Bull statue is pictured in Manhattan, New York.
Carlo Allegri | Reuters
A closely watched survey of global fund managers showed the lowest cash allocation on record this month, underscoring an upward trend in stocks as the stock market nears the end of a strong year.
The average cash allocation 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’s the largest underweighting of currencies relative to stocks since at least 2001, when the survey began, the company said.
Simply put, the data “shows a super-optimistic mood,” investment strategist Michael Hartnett wrote to clients on Tuesday.
He cited interest rate cuts from a “docile” Federal Reserve and growth expectations under President-elect Donald Trump as driving the rush into stocks.
As for the former, traders will get a glimpse into the Fed’s thinking on Wednesday when the central bank announces its final interest rate decision of the year this afternoon. Fed fund futures price more than one 95% probability The central bank is cutting borrowing costs at the policy meeting, according to the CME FedWatch tool.
This 14% net underweight in cash represents a significant reversal from November’s 4% net overweight. This 18 percentage point drop in cash allocation was the largest monthly decline in about half a decade, according to Bank of America data.
Additionally, the average cash holdings of surveyed managers fell from 4.3% of assets under management to 3.9%, reaching a new low since June 2021.
This was the second time in the last three months that this level fell below the key 4% mark, triggering a contrarian sell signal, according to Hartnett. This is based on the idea that with a heavy concentration on stocks, there isn’t much money left to drive the market higher. Holding cash can be viewed as a safe investment for investors who want to hold back their assets during expected volatility.
This comes as Wall Street prepares for further gains through 2025, after a year that has so far significantly exceeded expectations. The average target of market strategists suggests S&P 500 will rise just over 10% between Monday’s close and the end of 2025, according to CNBC Exclusive survey for Pro subscribers.
However, if next year looks like 2024, that could be a problem significant underestimation. As of midday Tuesday, the broad index expects 2024 to rise more than 26% to nearly 6,050. Earlier this year, the most optimistic strategist on the Street had expected the index to end 2024 at just 5,200.
Despite strength this year, stocks have taken a breather recently. What’s notable is that the Dow Jones Industrial Average is on track to reach its value Longest daily losing streak since the 1970s.
More than 170 participants answered questions in Bank of America’s December survey, one of the most widely followed investor indicators. The group includes people with titles such as chief investment officer and portfolio manager.
