Investor sentiment in global equity markets moved decisively toward optimism in Bank of America’s July Global Fund Manager Survey (FMS), driven by stronger expectations for an economic upswing, elevated AI-related capital spending and widespread belief the Federal Reserve will remain on hold ahead of the U.S. midterms.
The survey, collected July 2-9 from 181 portfolio managers overseeing $484 billion in assets, recorded a sharp fall in cash holdings. Fund managers held 3.6% of assets in cash in July, down from 4.1% in June and marking the lowest cash allocation since February 2026. That decline activated a "sell" alert on BofA’s Global FMS Cash Rule, which signals reducing equity exposure when cash falls to 4.0% or below.
Another contrarian metric from the bank, the Bull & Bear Indicator, rose to 9.4 - an extreme bullish reading that also generates a sell signal under BofA’s framework. BofA strategists led by Michael Hartnett cautioned investors on the readings, advising to "reduce equity & high-beta exposure" and suggesting that any "summer upside for risk assets" may be limited by concentrated bullish positioning.
Economic views and market forecasts
The July survey found a majority of respondents expect continued economic resilience over the coming year. A record 54% of respondents forecast a "no landing" outcome for the global economy over the next 12 months, while 39% anticipated a soft landing and only 2% expected a hard landing.
Outlooks for an above-trend expansion accompanied by above-trend inflation - described in the survey as a "boom" scenario - increased to 41%, the highest reading since February 2022. At the same time, inflation expectations among panelists eased to their lowest level since January 2025.
Projections for oil settled lower in the July survey, with the panel’s year-end 2026 oil price forecast falling to $71 per barrel from $86 in June. When asked whether the Federal Reserve would lift rates before the November midterm elections, 83% of respondents said no.
Portfolio positioning and sector moves
On allocation, fund managers increased their net overweighting of U.S. equities to 24% - the largest overweight since December 2024 and the third-highest reading in five years. The survey showed rising allocations to the eurozone, healthcare and industrials, with industrials reaching their most overweight level since July 2021.
Conversely, investors reduced exposure to United Kingdom equities, moving to the most underweight stance since August 2020. Allocations were also cut to emerging markets, commodities and consumer staples; the latter fell to its lowest allocation since February 2014.
For the first time since May 2017, the panel expected low-dividend-yield stocks to outperform high-dividend-yield stocks, indicating a preference for growth-style or non-income-oriented equities in the current positioning.
AI trades, crowding and perceived tail risks
Artificial intelligence-related investment themes featured prominently in the July survey. Eighty-two percent of respondents named being "long global semiconductors" as the most crowded trade worldwide. Almost half of participants - 48% - identified AI hyperscaler capital spending as the single most likely source of a systemic credit event.
Respondents also ranked perceived tail risks differently than in June: "AI bubble" became the top-tail risk, cited by 45% of the panel, up from 28% in June. That overtook concerns about a "second wave of inflation."
Implications for investors
The data show widespread optimism across several measures - lower cash buffers, heightened bullish indicator readings and concentrated long positions in key sectors. At the same time, BofA’s tactical signals and strategists' guidance reflect a warning that heavy positioning, particularly in high-beta and AI-related trades, could limit near-term upside for risk assets unless positioning becomes more balanced.
Investors and allocators reading the survey will likely weigh the combination of stronger growth expectations and lower inflation forecasts against the concentration risks signaled by both cash metrics and crowding in specific trades.