There are warning signs for risk trades in the latest survey of fund managers

The madness in meme stocks this week is a warning sign about market euphoria, though I highlighted earlier that the last GME mania was a year before the market top.

The monthly fund manager survey from Bank of America Securities is another warnings sign. BofA investment strategist Michael Hartnett said was the "most bullish Fund Manager Survey since November 2021, which is notable because stocks peaked in the following Dec/Jan.

He said the optimism is driven by rate cuts rather than earnings growth. The risk there is that rate cuts or hints at rate cuts become a 'sell the fact' trade, especially if that comes with a weak economy.

The survey showed that 80% of managers still see cuts in the second half of the year and no recession.

Cash levels are down to just 4.0%, which is a 3-year low and stock allocations at the highest since January 2022 (when markets peaked).

Hartnett said sentiment is not yet at "close-eyes and sell" levels but markets are vulnerable, especially since expectations on global GDP and EPS are sliding.

The most-crowded trades:

• Long Magnificent 7 (51%)
• Long US dollar(12%)
• Short China equities” (11%)

In terms of moves, the survey showed modest defensive rotation inMay (to staples from industrials). Hartnett notes that in absolute terms investors have big overweight positions in stocks (large cap growth), health care, tech, Europe, commodities and big underweight allocations in REITs (largest since Jun’09), utilities, UK, discretionary, bonds.