21.07.25 - Next alert - from Fund Managers
Bank of America’s latest Global Fund Manager Survey is flashing a “sell” signal as average cash holdings among institutional investors dropped to 3.9% in July, down from 4.2% in June. Historically, cash levels below 4% have triggered a contrarian warning. Since 2011, similar readings led to a median 4-week S&P 500 decline of -2%. The worst post-signal drawdown reached -29%, while the best return was a modest +3%.
The report also highlights a historic record surge in risk appetite over the last three months. Investor sentiment is now the most bullish since February 2025, driven by the strongest jump in profit optimism since July 2020.
Markets: European markets are lagging and even negatively performing while US indices hover near record highs, supported by momentum in tech, falling volatility, and steady inflows - gold price is up with other metals trading close to USD 3’400/oz - interest rates and US dollar both decline - most cryptos take a breather after latest rally
My view: Speculation is heating up, and today brought more signs confirming it. Most steel producers rallied several percentage points, driven by renewed optimism.
The catalyst? China announced the official start of the construction on a massive hydropower project in Tibet, set to become the world’s largest. With an estimated cost of USD 167 billion, the mega dam is expected to fuel substantial demand for raw materials, particularly steel and cement.
Speculative investors were quick to react, jumping into related stocks in hopes of riding the momentum. However, such price spikes rarely prove to be sustainable beyond the initial headline reaction.
Despite the rally in cyclical sectors, macro risks remain largely ignored, including tariffs, elevated valuations, and geopolitical uncertainties.
At the same time, market sentiment has reached extreme levels. Such crowded positioning and elevated optimism, markets are increasingly vulnerable to unexpected shocks. While no single indicator should dictate timing, this “sell” signal from the Fund Manager Survey adds to a growing list of caution flags. This environment favors tightened risk management, potential profit-taking, or hedging strategies, especially for those with significant exposure to momentum-driven assets.
in the ETFMandate portfolio, I’ve continued to reduce exposure gradually over recent weeks by placing stop orders to protect gains.
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