BofA FMS (May): Fund Managers added stocks at the fastest pace recorded

BIG PICTURE: Fund managers shifted into stocks at the fastest monthly pace ever recorded, with cash holdings falling to levels that historically signal a market pullback. BofA’s sentiment gauge is now just one notch away from flashing a full “sell” signal, and the bank thinks early June could be a good moment to take profits.
ECONOMY: Recession fears have nearly vanished; BofA notes that only 4% of managers think a hard landing is coming. Most expect either a soft landing (46%) or no slowdown at all (39%). Profit expectations also flipped sharply from pessimistic to optimistic in a single month. BofA says the catch is that nearly 70% still expect stagflation, and two-thirds think prices will be higher a year from now.
RATES/BONDS: Most fund managers still expect the Fed to cut rates this year, but inflation anxiety is rising. 62% think the 30yr Treasury yield is more likely to break above 6% than fall below 4%, a sign of deep unease about the US fiscal path. Bond allocations have been cut to their lowest level since mid-2022.
CROWDED TRADES: Tech and semiconductors are the most crowded trade by a wide margin; BofA says that nearly three quarters of managers flagged it. EM stocks are also heavily owned. BofA says fund managers are rotating hard out of defensive sectors like consumer staples and healthcare, and out of UK and Eurozone stocks, in favour of cyclicals, commodities, and US equities.
CONTRARIAN: BofA flags that anyone wanting to fade the crowd should consider buying bonds, UK stocks, and consumer names, which are all out of favour, while trimming exposure to semiconductors, commodities, and emerging markets, where positioning has become very stretched.