Is the U.S. stock market turning bearish just empty worries? Bank of America survey: Fund manager sentiment unusually entering "comprehensive optimism" mode

According to the monthly survey conducted by Bank of America, fund managers are confident in various aspects ranging from economic growth to stocks and commodities, and are ready to welcome the new year. In December, the investor sentiment index, measured by levels of cash, stock allocation, and global growth expectations, rose to 7.4 (on a scale of 10), marking the most optimistic result in four and a half years. The combined exposure to stocks and commodities (assets that typically perform well during economic expansions) reached the highest level since February 2022, before inflation shocks led to a sharp increase in global interest rates. Bank of America strategist Michael Hartnett stated that this level of optimism has only occurred eight times in this century. These eight times include the recovery period after the global financial crisis from November 2010 to February 2011, and the prosperous period after the COVID-19 pandemic from November 2020 to July 2021. The MSCI Global All-Country Index rose nearly 20% in 2025, marking the third consecutive year of double-digit gains, thanks to global central banks lowering interest rates amid robust economic growth. Despite concerns about a potential tech bubble in the United States, confidence in the resilience of the economy has driven major stock indices back to near historic highs. An informal survey of the United States, Europe, and ACR Holdings management companies shows that they believe the stock market will be stronger in 2026. Market forecasting agencies, including Morgan Stanley, Deutsche Bank, and Citigroup, are also optimistic, with many banks predicting that the U.S. stock market will rise by over 10%. Institutional surveys show that over three-quarters of asset allocators are adjusting their portfolios for a risk-on environment before 2026. They are betting on the resilience of global economic growth, further development of artificial intelligence, loose monetary policy, and fiscal stimulus to bring excess returns to global stock markets. Bank of America's survey shows that about 57% of respondents expect a soft landing for the U.S. economy, while only 3% predict a hard landing, the lowest level in two and a half years. The cash holdings ratio dropped from 3.7% in the previous month to a historic low of 3.3%. Additionally, concerns remain about the valuation of U.S. tech companies, with the artificial intelligence bubble still seen as the biggest tail risk, although this percentage is lower than last month's record of 20%, with 14% of respondents believing companies are spending too much on capital expenditures. The Bank of America survey was conducted from December 5 to December 11, with 203 participants with a total assets of $569 billion. Although the major U.S. stock indices fell on Monday, the S&P 500 closed at a historic high last Friday, which is not uncommon in 2025 as it has been six weeks since the last time it hit a historic high. However, the market dynamics on December 12 are indeed different compared to late October. First, the high point in October occurred amid investor enthusiasm, mainly due to strong earnings season and excitement about the prospects of artificial intelligence. This time, there is no such enthusiasm, which is undoubtedly a good sign for bulls expecting a year-end rebound. The sentiment index compiled by Ned Davis Research (which tracks 20 indicators including volatility, investor positions, and institutional investor surveys) is below 62.5 - the bottom of the overheated sentiment range. Ed Clissold, Chief U.S. Strategist at Ned Davis Research, said: "Considering that U.S. companies continue to deliver strong earnings performance and the U.S. economy shows resilience, market sentiment is far from ecstatic, indicating that there is still more room for growth by the end of the year and early next year. " Meanwhile, the scope of the rise in U.S. stocks is significantly expanding. For example, last Friday, Goldman Sachs' cyclical stocks versus defensive stocks index rose for the 13th consecutive trading day, setting a new record for the longest streak. Goldman Sachs wrote: "Unless the market begins to lean towards better growth prospects, such a trend will not emerge." Historical data also suggests that this rotational trend may continue. Since 2007, after periods where cyclical stocks outperformed defensive stocks for eight consecutive trading days or more, the S&P 500 index has shown positive returns. The median one-month return for the index is 2%, and the three-month median return is 6%. London Stockton, a research analyst at Ned Davis Research, said: "Many sentiment indicators show no signs of extreme optimism, failing to demonstrate the frenzy usually seen at market tops. With this mixed sentiment, optimistic trend, positive seasonal factors, and friendly policies from the Fed, next year's stock market is expected to be bullish."