Global investors increased allocations to equities and commodities in November, yet low cash levels are raising concerns that bullish positioning may now act as a headwind for markets, according to Bank of America’s (BofA) monthly fund manager survey.

The survey, conducted from Nov. 7–13 and covering 172 fund managers managing $475 billion, highlighted the potential for a market correction if the U.S. Federal Reserve does not deliver a rate cut in December. Analysts warn that emerging markets and banks are particularly vulnerable to a significant risk-off move in the final quarter of 2025.

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Crowding in Tech and AI-Related Risks

The survey flagged heavy crowding in the technology sector, with 54% of managers naming “long Magnificent 7” as the most crowded trade. In addition, 45% cited an AI bubble as the primary tail risk facing global markets.

For the first time in 20 years, investors also reported that companies are “overinvesting”, reflecting concerns that spending by major hyperscalers may need to slow down. This underscores a broader debate about whether elevated corporate capital expenditure is sustainable amid tightening monetary conditions.

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Market Positioning and Cash Levels

Despite bullish allocations, investors’ cash levels stand at just 3.7%, a historically low figure. BofA analysts note that while optimism is strong, this positioning creates vulnerability in risk assets, leaving markets more exposed to downside pressure if external shocks or policy surprises occur.

The survey, titled “Cash poor, capex rich, rate cut needy,” paints a picture of markets that are heavily positioned for growth but may lack buffers to absorb negative surprises.

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Implications for Investors

The findings suggest a delicate balance for markets heading into year-end:

• Equities and commodities remain attractive to investors seeking returns, but excessive bullish positioning increases sensitivity to corrections.
• Emerging markets and banking stocks may face the greatest downside risk if risk-off sentiment materializes.
• Tech and AI investments could experience heightened volatility due to crowded trades and overinvestment by major firms.
• The potential for a Federal Reserve rate cut in December may play a pivotal role in supporting markets or preventing a sharper correction.

Market participants are advised to monitor positioning, sector concentration, and macroeconomic signals closely as year-end approaches, balancing optimism with caution.