BofA’s Hartnett: Positioning and low cash risks for stocks without a December cut

Investing.com -- Positioning has become a growing source of fragility for equities, Bank of America’s November fund manager survey (FMS) shows, with strategists warning that stretched risk-taking leaves stocks exposed if the Federal Reserve does not deliver a rate cut in December.

Cash levels have fallen to 3.7%, a threshold BofA labels a “sell signal,” and equity allocations have climbed to their highest point since February. Investors are now “most overweight (OW) stocks since February 2025,” BofA highlighted.

The bank’s strategists, led by Michael Hartnett, stress that FMS positioning is now “a headwind not tailwind for risk assets,” warning that frothy sentiment could “correct further without Fed Dec rate cut.”

Investors entered November more bullish on the macro backdrop and increasingly confident in a soft landing. A net 3% now expect stronger global growth, the first positive reading of the year, while 53% expect a soft landing and only 6% foresee a hard landing.

Productivity optimism around artificial intelligence continues to build, with 53% saying AI is already lifting productivity, even as concerns rise about the scale of corporate investment.

For the first time since 2005, a net 20% of respondents say companies are “overinvesting.”

“This jump is driven by concerns over the magnitude & financing of the AI capex boom,” strategists noted.

Crowding, meanwhile, remains elevated. “Long Magnificent 7” reclaimed the title of most crowded trade at 54%, while “AI bubble” was again the top tail risk at 45%. A record 63% of investors believe global equities are overvalued, and more than half say AI stocks are already in bubble territory.

Private credit remains the most feared source of a systemic credit event, cited by 59% of respondents.

In terms of asset allocation, investors added to Healthcare, Staples, bonds and Banks in November, while cutting Consumer Discretionary exposure by the most on record. They remain most overweight Healthcare, emerging market (EM) equities and Banks, and most underweight U.K. equities, Energy and Consumer Discretionary.

Commodities positioning rose to the highest level since September 2022, while cash remains deeply out of favor.

Forward-looking expectations also leaned constructive. Respondents see international equities and U.S. stocks as the best-performing assets in 2026, and expect MSCI Emerging Markets to lead major indices.

On currencies, the Japanese yen and gold are viewed as the likely outperformers. 

The most bullish potential development for next year is “widespread AI productivity gains,” while the most bearish is “inflation & Fed rate hikes.”