BoA Global Fund Manager Survey: Historical Record High Allocation to Stocks in a Single Month, Sell Signal Approaching

The sentiment of buying the dip has reached a critical point that warrants caution.

A global fund manager survey by Bank of America Securities showed that in May, asset managers' net overweight position in equities jumped from 13% last month to 50%, setting a historical record for a single-month increase.

This marks the highest overweight position on equities by fund managers since January 2022 and is approaching Bank of America's own sell signal trigger line.

The survey was conducted from May 8th to 14th, covering 170 respondents with a total managed asset size of $461 billion.

AI Enthusiasm and Strong Earnings Reports are the Two Major Drivers

The core driving force behind this wave of stock purchases comes from two directions: first, investors' enthusiasm for the prospects of AI continues to heat up, driving global indices to repeatedly set new historical highs, with the S&P 500 index setting another record on May 14th; second, the first quarter's earnings season exceeded expectations—the S&P 500 companies have recorded the strongest earnings growth in over two decades (excluding the recovery period after significant shocks).

Synchronized with the increase in stocks is a significant withdrawal of cash. The cash ratio in respondents' portfolios in May has dropped to 3.9%, marking the largest monthly decrease since February 2024. In the market analysis framework, a cash ratio below 4% has always been a contrarian indicator, meaning that market optimism is quite sufficient.

Semiconductors: From Last Month's "Long Oil Prices" to This Month's Most Crowded Trade

The chip sector is the biggest beneficiary of this market movement and also one of the most striking findings of this survey. The Philadelphia Semiconductor Index has accumulated nearly a 50% increase since the end of March, with 73% of respondents holding long positions in semiconductor stocks—a significant leap from approximately 25% last month. Semiconductors have thus replaced "long oil prices" as the most crowded trade in the global market this month.

Last month's top position of long oil prices has now been completely replaced by semiconductors. Investors are widely betting that the expansion of AI infrastructure will continue to drive supply bottlenecks for key components like memory chips, thereby pushing prices higher. The sharp increase in crowdedness also means that the potential volatility risks of this trade deserve close attention.

Over Sixty Percent Bet on 30-Year Yield Breaking 6%

In terms of long-term interest rate expectations, respondents' judgments are noticeably skewed towards upward risk. 62% believe that if there is a significant yield fluctuation in the next 12 months, the 30-year US Treasury yield is more likely to break through 6% upward rather than downward; only 20% bet on the yield falling below 4%.

The current 30-year US Treasury yield is around 5.13%, which rose to 5.16% during trading on Monday, setting a new high since October 2023.

Despite the overall optimistic sentiment, respondents remain highly vigilant about inflation risks. 40% of respondents listed "second-round inflation" as the current largest tail risk, topping all single risk factors. With the current international oil prices above $100 per barrel and peace negotiations between the US and Iran at an impasse, these factors have already impacted the global bond market and corroborate most respondents' expectations of rising long-term interest rates.

Hartnett Warns: June May Be a "Profit-Taking" Window

Bank of America's Chief Investment Strategist, Michael Hartnett, reiterated his judgment from last week—that the "capitulation" process for stock bulls is nearly complete, characterizing early June as a timeframe "suitable for taking profits" in stocks. He specifically pointed out that the direction of bond yields will determine the amplitude of the pullback.

The pressure on the bond market is already undeniable. The Iran war has led to a surge in energy prices, with inflation expectations rising, which has warmed up market expectations for central bank rate hikes rather than cuts. The 30-year US Treasury yield has climbed to about 5.15%, not far from the highest level since 2007. The survey shows that 62% of respondents believe the 30-year US Treasury yield will further break through 6%. Nevertheless, most respondents still expect the Federal Reserve to initiate rate cuts this year, with inflation listed as the largest risk affecting returns.

Europe Suffers Fastest Sell-Off in History, Capital Flows into the US

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