Investor positioning across global markets is flashing one of its strongest optimism signals in decades, according to Bank of America.
Key Takeaways
BofA’s Bull & Bear Indicator is at extreme levels that have historically warned of market pullbacks.
Fund managers are heavily exposed, with minimal hedging and very low cash levels.
Crowded positioning is increasing, while strategists favor rotating out of top tech into more defensive or cyclical areas.
The gauge, which tracks a blend of fund flows, positioning, and market breadth, recently climbed to levels rarely seen outside major turning points. What makes the current reading stand out is not just how high it is, but how quickly sentiment has converged toward a single narrative: risk-on, almost without restraint.
A Sentiment Reading Near Historical Extremes
As of early February 2026, the Bull & Bear Indicator pushed to 9.6, its highest reading since 2006 and well above the threshold BofA defines as “extreme bullish.” In the past two decades, the indicator has reached this zone only a handful of times, often shortly before meaningful market pullbacks.
BofA data shows that since 2002, similar extremes have been followed by an average global equity drawdown of roughly 8.5% within three months. While not every signal has led to a full correction, the consistency of weaker forward returns has earned the indicator a reputation as a contrarian warning rather than a momentum signal.
When Protection Disappears
One of the more striking details beneath the headline number is the collapse in downside protection. Nearly half of surveyed fund managers now report holding no meaningful hedges against a sharp market decline – the highest share in eight years. This suggests not only optimism, but confidence that volatility will remain contained.
At the same time, cash levels among professional managers have fallen to record lows, leaving little dry powder if conditions suddenly shift. Historically, such positioning has amplified market moves when sentiment reverses.
Crowding Moves Beyond Big Tech
Another change unfolding beneath the surface is where investors are clustering. While mega-cap technology stocks dominated “crowded trade” rankings for much of the past year, that title has now shifted. More than half of respondents point to long gold as the most congested position in the market, highlighting how defensiveness and speculation are beginning to mix in unusual ways.
This rotation suggests investors are simultaneously chasing performance and quietly preparing for instability – a combination that has often appeared late in market cycles.
Hartnett’s Rotation Call
BofA’s chief investment strategist Michael Hartnett argues that this environment favors tactical rotation rather than broad exposure. He has highlighted the risk of staying overweight high-flying growth names and instead points toward more economically sensitive “Main Street” segments, including small-cap stocks, banks, and real estate investment trusts.
The idea is not outright bearishness, but repositioning away from the most crowded areas before sentiment becomes a liability.
Professionals vs. Retail Investors
Interestingly, optimism is not confined to institutional players. The AAII Investor Sentiment Survey shows retail bullishness hovering near 50%, an elevated level but still short of historical extremes. This gap suggests professional managers may be leading the charge into stretched positioning, with individual investors following rather than driving the move.
Data compiled by Morningstar reinforces this divergence, showing professional allocations shifting more aggressively than retail flows.
A Market With Few Buyers Left
Taken together, the message from sentiment indicators is clear: optimism is no longer building – it is already built. When most investors are positioned for upside, markets often struggle to find the incremental buyers needed to push prices sustainably higher.
That does not guarantee an immediate reversal. But history suggests that periods like this tend to reward caution, selective exposure, and flexibility far more than blind confidence.
