Super optimistic sentiment sweeps the U.S. stock market! Fund managers' cash allocation ratio hits a historic low

According to the Zhitong Finance APP, a highly anticipated global fund manager survey this month shows that the cash allocation ratio of fund managers has hit a historic low, highlighting the optimism towards stocks as a strong growth year comes to an end.

According to data released by Bank of America on Tuesday, the average cash allocation level among participants in the Bank of America Global Fund Manager Survey has fallen to a low level of 14%. The company stated that this is the largest reduction in cash relative to stocks since the survey began in 2001.

Investment strategist Michael Hartnett wrote in a letter to clients on Tuesday that, in short, the data "indicates an extremely optimistic sentiment."

He mentioned that the Federal Reserve's "accommodation to public opinion" in cutting interest rates and expectations for economic growth under President Trump's leadership are factors driving people into the stock market. Regarding the former, traders will understand the Fed's thoughts when it announces its last interest rate decision of the year on Wednesday. According to the FedWatch tool from the Chicago Mercantile Exchange, prices for Fed funds futures indicate that the likelihood of the Fed lowering borrowing costs at the policy meeting exceeds 95%.

The statistic of a net cash over-allocation of 14% represents a significant shift compared to a net over-allocation of 4% in November. According to Bank of America, the cash allocation has decreased by 18 percentage points, marking the largest single-month decline in nearly five years.

Additionally, the average cash level among surveyed managers has dropped from 4.3% of managed assets to 3.9%, reaching a new low since June 2021.

This marks the second time in three months that the critical 4% threshold has been breached, with Hartnett stating that this sends a reverse sell signal. This is because, in a highly concentrated stock environment, the cash that has driven the market up is now scarce. For investors looking to maintain a wait-and-see approach during expected volatility, holding cash can be seen as a safe choice.

After an unexpectedly strong 2025 so far, Wall Street is preparing for further gains in the stock market. According to an exclusive survey of professional subscribers by foreign media, the average target of market strategists indicates that the S&P 500 index will rise by more than 10% from the close on Monday to the end of 2025.

However, if the trend in the coming year resembles that of 2024, this could be a serious underestimation. As of Tuesday noon, the major index is expected to rise by more than 26% by the end of 2024, reaching nearly 6050 points. At the beginning of this year, Wall Street's most optimistic strategists had expected the index to only reach 5200 points by the end of 2024.

Despite a strong performance this year, the stock market has recently seen some pullback. Notably, the Dow Jones Industrial Average is on track to set the longest consecutive decline record since the 1970s.

More than 170 participants answered Bank of America's December survey questionnaire, which is one of the most closely watched indicators by investors. Respondents include chief investment officers, portfolio managers, and others