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Investors are embracing risk to start the new year, according to the latest release of one of Wall Street’s most closely watched surveys, which came out the same day the S&P 500 hit a new record high. 

The takeaway from Bank of America’s fund manager survey is clear: Investors are very optimistic about global equity markets in 2025. 

Cash allocations tell the story. Respondents slashed their cash holdings to 3.5% — the lowest since 2010 and two standard deviations below typical levels. 

BofA strategist Michael Hartnett put it succinctly, declaring that investors “long stocks, short everything else.” 

Investor bullishness, as measured by cash on hand, stock allocations, and economic forecasts, climbed from 6.1 to 6.4, just below the “frothy” levels seen in December, according to the poll, which was taken in the week up to February 13 and included 168 participants overseeing $400 billion in assets. 

Fund managers are overweight stocks by a sizable margin, with going long on the Magnificent Seven being the most crowded trade. 

However, investors reported rotating into Europe in February. US equities came in third (18%) on expectations for the best-performing asset class in 2025, behind global stocks (34%) and gold (22%). 

At the same time, 89% of respondents said US stocks are overvalued. 

Meanwhile, fears of a global recession declined to a three-year low, and 51% of fund managers expect two or more Fed rate cuts in 2025. 

Bank of America’s results clash with the latest report from the American Association of Individual Investors, which showed 47.3% of respondents — a 15-month high — expect stock prices to fall in the next six months. 

What’s more, another segment of institutional investors reported that their risk appetite has indeed dropped this month, according to the S&P Global Investment Manager Index. 

So which of these sentiment surveys best reflect reality? 

The S&P 500 has gained 4.45% in seven weeks, and it’s up 23.2% in the last year. 

You make the call. 

Comments or feedback? Reply directly to this email or let me know on X @philrosenn.

Elsewhere:

📈 Intel stock jumped 16% Tuesday after a report that its rivals Broadcom and TSMC are in talks with the tech giant that would split it in two. TSMC is reportedly looking to control Intel factories. Broadcom is said to want Intel’s chip design and marketing business. (Yahoo Finance)

🚗 Trump eyes 25% auto tariffs. The president said Tuesday that he’s eyeing something “in the neighborhood” of that number, and that he’ll have more to share on April 2. Earlier, Trump said levies on automobiles would begin in April once his team delivers reports outlining various strategies for global trade. (Reuters)

🔻Meta’s 20-day win streak ended Tuesday. The stock remains up 22% year-to-date, easily beating its Magnificent Seven peers. A lot has gone right for the social media company, and its shareholders have shrugged off the DeepSeek scare that sparked sell-offs in its peers. (Barron’s)

🤝 Capital One and Discover shareholders voted for a merger. Investors representing the majority of both companies’ outstanding shares voted in favor of the $35 billion deal, the two firms announced Tuesday. Next, the Federal Reserve and the Office of the Comptroller of the Currency will have to approve it. (Bloomberg)

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