After several months of almost uninterrupted gains in U.S. equity markets, certain sentiment and positioning indicators suggest that a mature phase of the bullish cycle has now been reached. Two recent charts, published respectively by BofA Global Research and Real Investment Advice, clearly illustrate this state of moderate euphoria, which warrants a more cautious approach.
The first chart, taken from the BofA Global Fund Manager Survey (FMS), shows that the average level of cash held by major institutional managers has fallen to 3.8% of assets under management, a cycle low. Historically, such low cash levels indicate high risk-taking and strong confidence in the market’s continued rise. BofA notes that a cash level of 3.7% or less constitutes a “sell” signal in their framework, as it suggests professional investors have little remaining dry powder to buy in case of a correction. In other words, the market’s “marginal buying power” is now limited.
The second chart, published by Real Investment Advice, highlights the evolution of margin debt in the U.S.—the money borrowed by investors to buy stocks on credit, in other words, leverage. It currently sits at exceptionally high levels, far above its 48-month moving average. Every past episode of excessive margin debt—during the 2000 dot-com bubble, the 2008 financial crisis, or the 2021 speculative mini-cycle—was followed by a sometimes brutal normalization phase. These periods do not necessarily mark the start of a bear market but often signal a heightened vulnerability to any negative economic, geopolitical, or financial news.
The combination of these two signals—fully invested managers and massive use of leverage—reflects an environment of extreme confidence. Such a configuration is common at the end of bullish cycles: investors seek to capture the last gains of a rally, but the slightest disappointment can trigger quick profit-taking.
Without announcing an imminent reversal, these indicators call for prudent management: reassessing exposure to risky assets, strengthening diversification, and keeping cash available to seize potential opportunities during pullbacks.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
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All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
The first chart, taken from the BofA Global Fund Manager Survey (FMS), shows that the average level of cash held by major institutional managers has fallen to 3.8% of assets under management, a cycle low. Historically, such low cash levels indicate high risk-taking and strong confidence in the market’s continued rise. BofA notes that a cash level of 3.7% or less constitutes a “sell” signal in their framework, as it suggests professional investors have little remaining dry powder to buy in case of a correction. In other words, the market’s “marginal buying power” is now limited.
The second chart, published by Real Investment Advice, highlights the evolution of margin debt in the U.S.—the money borrowed by investors to buy stocks on credit, in other words, leverage. It currently sits at exceptionally high levels, far above its 48-month moving average. Every past episode of excessive margin debt—during the 2000 dot-com bubble, the 2008 financial crisis, or the 2021 speculative mini-cycle—was followed by a sometimes brutal normalization phase. These periods do not necessarily mark the start of a bear market but often signal a heightened vulnerability to any negative economic, geopolitical, or financial news.
The combination of these two signals—fully invested managers and massive use of leverage—reflects an environment of extreme confidence. Such a configuration is common at the end of bullish cycles: investors seek to capture the last gains of a rally, but the slightest disappointment can trigger quick profit-taking.
Without announcing an imminent reversal, these indicators call for prudent management: reassessing exposure to risky assets, strengthening diversification, and keeping cash available to seize potential opportunities during pullbacks.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.