• A record 58% of fund managers say global equities are overvalued, yet 28% are overweight stocks—double August’s share and a seven-month high, per Bank of America’s September survey.
  • Despite high valuations—the S&P 500 trades at 22.2× forward earnings vs. the 30-year average of 17×—managers are confident in their stock picks and continue moderate risk-taking.
  • The bullish sentiment reflects optimism on trade, rate cuts, and ongoing market gains, with the S&P 500 up 12% in 2025.

A curious divergence is defining the mood among global investors. Even as a record majority call stocks expensive, they are putting more money to work in them, according to the latest Fund Manager Survey from Bank of America. The allocation to equities hit a net 14% overweight in the survey, the highest reading since February and marking the fourth consecutive month of increases.

This optimism is fueled by a confluence of supportive macro developments. Recent trade agreements between the US, Japan, and the EU have significantly dialed back fears of a trade war-induced recession, a risk that had loomed large over markets for much of the past year. Concurrently, rate cuts from the Bank of England and the European Central Bank have provided additional liquidity and bolstered confidence in risk assets. Optimism for a US rate cut is also at its highest level since December 2024, according to the survey.

Yet, the survey reveals a market deeply conscious of its own excesses. A record 91% of managers view US stocks as overvalued, leading to a net underweight position in the region. Instead, capital is flowing elsewhere. Emerging markets are now the largest overweight position for global fund managers, who largely view them as a relative bargain. There’s also a notable sector rotation underway, with managers moving into utilities, energy, and financials while pulling back from healthcare.

The most crowded trade, however, remains a bet on the continued dominance of US tech. "Long Magnificent Seven" was once again named the most crowded trade, highlighting the concentrated risk that continues to underpin much of the market's gains. This has sparked internal debate among managers about whether certain sectors, particularly AI-related stocks, are in a bubble.

Despite the bullish tilt, the survey is not without its cautionary signals. Forty-one percent of respondents still expect the global economy to weaken over the next 12 months, and 27% see persistent inflation as a key risk that could prevent further central bank easing. The biggest tail risk, identified by 29% of managers, remains a potential recession triggered by a resurgence in trade wars.

Cash levels, often a gauge of investor caution, remain low at 3.9%, suggesting that the fear of missing out on further gains is currently outweighing the fear of a correction. For now, the narrative is one of cautious optimism, with fund managers betting their stock-picking skills can navigate what they openly admit is an expensive market.