BofA Warns Stock Bulls to Consider Curbing Aggressive Buying

g3vf88n70nhqi)jbay0iswd1_media_dl_1.png via Bloomberg

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(Bloomberg) — Global investors buying stocks aggressively should consider reducing exposure, according to Bank of America Corp.’s fund manager survey.

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Asset allocators have become extremely bullish, a typical warning sign for markets, with cash levels falling to an “uber-low” level of 3.6% of assets from 4.1% last month, strategists from the bank said. Positioning on US equities is now at its highest level since December 2024 at a net 24% overweight, the survey showed. 

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“BofA Bull & Bear Indicator at extreme bull reading of 9.4 says reduce equity and high-beta exposure,” the team led by Michael Hartnett wrote in a note. The BofA gauge has a range of one to 10. “Summer upside for risk assets to remain stymied by bull positioning.”

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US stocks are hovering near record highs after rebounding sharply from their Iran-war drop, as investors bet on gains for artificial intelligence beneficiaries, especially semiconductors. 

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At the same time, the fragile ceasefire is keeping oil prices volatile, while extremely high expectations for earnings and concerns about excessive AI capital spending by tech megacaps have capped the S&P 500 Index’s rally since the start of June.  

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The market’s most crowded trade is being long semiconductor stocks, according to 82% of investors in the BofA survey. Massive AI capex by the so-called hyperscalers is viewed as the most likely source of a credit event by 48% of respondents.

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Still, while investors have trimmed their long positions on technology stocks this month, 48% of respondents said AI stocks aren’t in a bubble, while 61% don’t expect an AI hyperscaler to announce a cut to capex this year. 

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Investors’ optimism about the economy has driven their increased exposure to stocks, the BofA strategists said. Some 41% of respondents expect an economic “boom,” featuring above-trend growth and above-trend inflation, the highest proportion in the poll since February 2022. 

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Overall, global equity allocation increased to a net 42% overweight, from a net 38% last month. Investors added exposure through healthcare, industrials and consumer discretionary stocks, while reducing their holdings in energy, communications and consumer staples.

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By region, investors increased exposure to US and euro-area shares, while cutting the UK to the most underweight level since August 2020, and reducing their emerging-market holdings. Bond allocations remained low at a net 34% underweight, a slight improvement from the 42% underweight noted last month. 

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The survey was conducted July 2 to July 9, and canvassed 181 participants with $484 billion in assets under management.

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