Barron: Cash Holdings Hit Record Lows as Investors Go Big on

Cash Holdings Hit Record Lows as Investors Go Big on Stocks. What History Says Happens Next.

Global investors are heading into next year with the lowest levels of cash on the sidelines on record, according to Bank of Americas closely-tracked survey of fund managers, and big bets in place on stocks, commodities, and President Donald Trumpsrun it hot economic strategy.

In fact, BofAs Global Fund Manager Survey (FMS) for December indicates the highest level of optimism for the economy in nearly 4 years, with allocations tostocksandcommoditiesat the highest levels since February of 2022. Fund managers are holding just 3.3% of their assets in cash, a record low, and see overall liquidity in global markets as the third best they have seen in 17 years.

That doesnt bode well for the stock market. The SP 500, for instance, peaked in January 2022, before sinking into a bear marker that year. BofAs own takeaway suggests something similar. The firm recommends buying global stocks when cash is at 5% or more, but selling equities when cash holdings drop below 4%.

Liquidity is likely as good as it gets, which has buoyed stocks in 2025, with lots of money chasing a few ideas, BofAs head of U.S. equity and quantitative strategy, Savita Subramanian, said in a separate report.

She sees fewer rate cuts from global central banks in 2026 and notes that government stimulus is likely to ebb rather than flow as U.S. debt to GDP is at fresh, uncomfortable highs.

Wall Street, however, continues its what, me worry? ways. The median price target for theSP 500

SPX

-0.24%

at the end of next year sits near 7700, a level that would suggest a 13% advance from current levels. Oppenheimers forecast of 8100 is the Streets highest, with Bank of Americas modest 7100 estimate holding up the lower end.

In terms of earnings, LSEG data suggests collective SP 500 profits will rise by around 14.7% next year to $317.06 a share.

The Federal Reserve has also vowed to support banks with renewed purchases of Treasury bills over the coming months, a move that will lower short term borrowing costs andprevent a liquidity squeeze in the financial sector.

Investors are investing for a bullish outcome: The FMS shows the biggest overweight to equity markets since December of last year, with tech still the sector of choice with a net overweight of 21%, the highest since July of last year.

Still, there are risks.Longer-term Treasury yieldsshould move higher next year, however, as the combination of loose monetary policy from the Federal Reserve and aggressive tax and spending plans tied to the Republican One Big Beautiful Bill Act drives bond prices lower.

Investors also expressed their concerns about a possible AI bubble. FMS investors continue to believe that companies are overinvesting as concerns linger about the AI capex boom, the report noted, although its gauge of worry eased from a record 20% to a net 14% of respondents who said companies are overinvesting in the new technology.

An AI bubble, however, remains the markets biggest tail risk according to the December survey, followed by worries over a disorderly surge in bond yields and a renewed quickening of inflation pressures.

With investors all-in on the bull market, it wont take a lot for history to repeat.