According to a survey by Bank of America Securities, cash levels in investor portfolios have decreased from 4.3% to 3.9%, which the firm interprets as a sell signal. Historically, when cash levels fall below 4.0%, the median loss over the following four weeks has been 1%, with the worst loss recorded at 29%.
Michael Hartnett, an investment strategist at the firm, noted that this trend indicates 'bull capitulation' is nearly complete, suggesting that traders may soon run out of funds to support the ongoing stock rally.
Despite a significant 19% rise in stocks since March, driven by optimism around artificial intelligence and strong performances from semiconductor companies, the low cash reserves raise concerns about a potential market correction. Additionally, the report highlights that nearly all money managers remain optimistic about global economic growth, with only 4% predicting a hard landing.
However, persistent risks, such as high oil prices above $110 per barrel and rising bond yields, particularly the 30-year Treasury yield exceeding 5.18%, could contribute to market volatility, as evidenced by recent selloffs in stocks like Micron Technology