Fund Managers Are Bullish—Until Yields Hit 5.9%

Fund Managers Are Bullish—Until Yields Hit 5.9%

October survey: optimism cools, but the bull case holds

Bank of America's October Global Fund Manager Survey, conducted October 2–8, found optimism at its lowest since June — yet investors remain bullish on the macro outlook and markets heading toward the midterm elections and third-quarter earnings season. S&P 500 futures are holding near 7,900, just off record highs.

5.9% is the line in the sand

The survey's standout number: the 10-year Treasury yield would need to reach 5.9% before investors rotate out of stocks and into bonds. The 10-year stood at 5.22% on Tuesday. Thirty-seven percent of respondents named 6% as the flip level, while 19% said they are already shifting. October has already seen the biggest bout of fixed-income short covering in the past year.

Cash at 3.9% says nobody is running

Cash levels of 3.9% — up from a 3.5% trough in August — still sit in sell-signal territory, a sign managers are cautious about chasing the S&P 500 higher but not selling it either. In October they added bonds, Japanese and UK stocks, and utilities, while cutting banks, US stocks and consumer discretionary. Allocations to banks posted their biggest monthly drop since March 2023.

The biggest fear: a disorderly bond market

Thirty-two percent named a disorderly rise in bond yields as the biggest tail risk; 23% pointed to an AI bubble. Asked whether there will be an AI bubble in 2027, 45% said yes and 42% said no. The most crowded trades are long global semiconductors (45%) and short US Treasuries (27%). Investors are the most overweight technology since August 2020 and the most underweight consumer discretionary since July 2008.

Three-quarters bet on a Fed hold

Seventy-six percent expect the Federal Reserve to keep rates on hold in October. Inflation expectations fell to their lowest since January 2025, and pessimism over long-term rates dropped to its lowest since May 2025. AI hyperscaler capital spending is seen as the most likely source of a systemic credit event (39%) — though 57% say those firms won't cut AI capex in the next six months.

The rally lives, but the bond market decides

The monthly survey, led by chief investment strategist Michael Hartnett, is Wall Street's standard read on institutional mood. The message: the rally isn't over, but the bond market is the variable — and everyone has now written down 5.9%.