Investors have entered the new year at ‘hyper-bull’ levels, according to Bank of America, with the share lacking downside protection at its highest since 2018.
After December showed investors were the most bullish since July 2021, sentiment climbed even further at the start of 2026, according to Bank of America (BofA.)
The findings also showed protection against a market correction has fallen to its lowest level in eight years.
Carried out between 9 and 15 January – prior to the market pullback sparked by US President Trump’s escalations over Greenland – the firm’s monthly Global Fund Manager Survey gathered responses from 196 participants managing US$575 billion in assets.
According to the report, based on cash levels, equity allocation and global growth expectations, global investor sentiment rose from 7.3 to 8.1 in the month as investors took net risk levels 16 per cent above normal.
Cash allocations fell to a record low of 3.2 per cent, slipping from 3.3 per cent the previous month. Meanwhile, net exposure to stocks and commodities relative to cash and bonds as a whole was the highest in four years, as investors rotated out of utilities, staples and US equities into industrials, commodities and European stocks.
Global economic growth optimism continued to surge, with net 38 per cent of respondents saying they expect a stronger economy – the highest since the post-COVID boom of 2021. By contrast, just 9 per cent said they expect a recession.
Overall, investors were found to have shifted to a “no landing” base case for the global economy for the first time in three years, with 48 per cent holding this view.
The combined effects of these shifts pushed BofA’s Bull & Bear Indicator to a “hyper-bull” 9.4, pointing to the need for risk hedges and safe havens. However, allocations did not reflect this, with nearly half of respondents (48 per cent) reporting no equity downside protection.
As BofA chief investment strategist, Michael Hartnett noted in the report: “Low levels of stock market hedging are irrelevant in a world of positive surprises; but it matters greatly if surprises suddenly turn greatly.”
Bloomberg reporting noted that one such surprise occurred soon after the poll, when Trump threatened tariffs on eight countries opposing his Greenland plan, sending stocks sliding worldwide.
Although markets have largely bounced back after the US President called off the threats, the episode remains a stark warning.
At the same time, there is evidence that broader economic activity is accelerating. Revisions to US third-quarter GDP last week were minimal but showed growth slightly stronger than initially reported, at a revised 4.4 per cent.
Overall, the survey found geopolitical conflict was seen as the biggest risk to markets for the first time since October 2024, ahead of AI bubble fears. On the AI question, 55 per cent of respondents said AI stocks are not in a bubble.
This follows the International Monetary Fund’s (IMF) recent warning that global growth could be disrupted by a reversal in the AI investment trend as well as persistent geopolitical uncertainty.
