New York, NY – December 16, 2025 – A recent Bank of America (BofA) Fund Manager Survey, conducted in December 2025, has unveiled a remarkably optimistic outlook among global fund managers for the year 2026. Sentiment has surged to multi-year highs, painting a picture of robust economic growth expectations and a significant "risk-on" shift in asset allocation. This pronounced bullishness suggests that investors are bracing for a favorable economic landscape, characterized by continued expansion and supportive policy environments.

The survey's findings point to a consensus among investment professionals that the global economy is poised for either a "soft landing" or even a "no landing" scenario, effectively dismissing fears of a significant downturn. This widespread confidence is immediately translating into aggressive positioning in riskier assets, with implications for equity and commodity markets as capital flows in anticipation of further gains.

Unprecedented Optimism Fuels Risk Appetite

The December 2025 BofA Fund Manager Survey registered an astonishing investor sentiment score of 7.4, the most bullish outcome recorded in four and a half years. This level of optimism, seen only eight times this century, historically precedes periods of strong economic growth and notable asset price movements. A significant 57% of respondents anticipate a "soft landing" – where inflation moderates without a recession – while another 37% foresee a "no landing" scenario, indicating sustained strong growth. A mere 3% now expect a "hard landing," the lowest share in two and a half years.

Reflecting this heightened confidence, fund managers are actively increasing their exposure to growth-oriented assets. Combined allocations to equities and commodities have reached their highest levels since February 2022, with a net 42% of respondents overweight equities, marking the highest reading since December 2024. Similarly, a net 18% are overweight commodities, the strongest showing since September 2022. This aggressive repositioning is further evidenced by a dramatic drop in average cash holdings among fund managers, which plummeted to a record low of 3.3% in December 2025 from 3.7% the prior month. Global growth expectations have also turned positive for the first time in 2025, with a net 18% expecting stronger global growth, a significant rise from November. Profit expectations are at their highest since August 2021.

Notably, optimism towards European equities has reached unprecedented levels, with a net 81% of respondents expecting near-term gains and a net 92% seeing upside over the next twelve months. This regional enthusiasm is underscored by European cash allocations falling to a twelve-year low of 2.8%, indicating a strong appetite for risk in the continent. This broad-based optimism is largely fueled by expectations of continued interest rate cuts by central banks in 2025, alongside robust economic expansion.

Potential Winners and Losers in a Bullish Market

The pervasive "risk-on" sentiment highlighted by the Bank of America survey suggests a broad-based uplift for sectors and companies poised to benefit from economic growth and increased investor appetite for risk. Technology companies, particularly those involved in Artificial Intelligence (AI), are likely to remain at the forefront of investor interest. The survey explicitly identifies "Long Magnificent 7" as the most crowded trade (54% of participants), indicating that major tech giants such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), NVIDIA (NASDAQ: NVDA), Tesla (NASDAQ: TSLA), and Meta Platforms (NASDAQ: META) are expected to continue their strong performance. However, this also flags them as potentially vulnerable to profit-taking or market corrections given their already high valuations and crowded positioning.

Commodity-linked companies are also set to benefit significantly from the increased allocation to commodities. Energy producers, mining companies, and agricultural firms could see sustained demand and price appreciation for their products. This includes major players in oil and gas, as well as industrial metals. Conversely, sectors traditionally viewed as defensive, such as utilities and consumer staples, might see relatively subdued performance as investors rotate out of safer havens into growth opportunities. Companies with high debt levels or those heavily reliant on stable, predictable earnings might find themselves less favored in a market driven by growth expectations, although the "soft landing" scenario mitigates some of these risks.

The survey also flags an "AI bubble" as the number one "biggest tail risk" (cited by 37% of investors), suggesting that while AI-related companies are poised for growth, they also carry the highest potential for a sharp correction. This could impact specialized AI software providers, semiconductor manufacturers (like NVIDIA (NASDAQ: NVDA)), and even broader tech companies heavily investing in AI infrastructure. Companies with strong balance sheets and diversified revenue streams, particularly those outside of the most "crowded" trades, might offer more resilient growth prospects.

Broader Significance and Market Dynamics

The pronounced optimism among fund managers for 2026, as revealed by the BofA survey, carries significant broader implications for global financial markets. It reinforces a prevailing narrative of economic resilience and a successful navigation of inflationary pressures by central banks. This "risk-on" environment is likely to accelerate existing trends, such as the continued dominance of growth stocks and a potential resurgence in cyclical sectors that benefit most from economic expansion. The strong bullish sentiment could also lead to increased M&A activity as companies seek to capitalize on favorable market conditions and readily available capital.

However, the survey also highlights cautionary signals that warrant close attention. The "AI bubble" being identified as the top tail risk suggests that while the technological revolution is exciting, the market's enthusiasm might be outstripping fundamental valuations in some areas. The "Long Magnificent 7" trade, while profitable, is now considered "crowded," indicating potential fragility if sentiment shifts. Moreover, Bank of America's own "Bull & Bear Indicator" has risen to 7.9, a level historically associated with a "contrarian sell signal." This suggests that extreme bullish positioning could become a "headwind for risk assets," potentially foreshadowing market reversals if the optimism becomes overheated.

Historically, periods of extreme investor optimism, especially when accompanied by crowded trades and high valuations, have often preceded market corrections. While the current economic backdrop appears supportive, the collective positioning of fund managers at such bullish levels could create vulnerabilities. Regulatory bodies might also begin scrutinizing asset valuations and market stability if the "AI bubble" concerns intensify, potentially leading to increased oversight in fast-growing tech sectors.

Navigating the Path Ahead: Opportunities and Challenges

Looking ahead, the short-term outlook for 2026 appears to be one of continued momentum, driven by the strong "risk-on" sentiment among fund managers. This could translate into further rallies in equity and commodity markets, particularly for companies and sectors that stand to benefit most from economic growth. Investors might see opportunities in emerging markets and European equities, given the specific optimism highlighted in the survey for these regions. The expectation of further interest rate cuts by central banks could also provide a tailwind for corporate earnings and asset valuations.

However, the long-term prospects are nuanced. The "contrarian sell signal" from BofA's Bull & Bear Indicator suggests that the market might be approaching a point of overextension. Fund managers will need to carefully monitor for signs of exuberance turning into irrationality, particularly in the "AI bubble" and other crowded trades. Potential strategic pivots might involve diversifying portfolios beyond the most favored sectors, focusing on companies with strong fundamentals that may have been overlooked in the rush towards growth, or hedging against potential downturns. Market challenges could emerge if economic growth disappoints, inflation proves stickier than expected, or geopolitical tensions escalate.

Potential scenarios for 2026 range from a sustained bull run, where the "soft landing" or "no landing" thesis plays out perfectly, leading to robust returns across asset classes, to a more volatile environment where periodic corrections test investor resolve. A "melt-up" scenario, driven by excessive liquidity and speculative fervor, could also be a possibility, followed by a sharper-than-expected correction if underlying fundamentals fail to catch up with market valuations. Investors should be prepared for both continued upside and potential periods of increased volatility.

A Bullish Horizon with Prudent Considerations

The Bank of America Fund Manager Survey paints a predominantly bullish picture for 2026, with fund managers entering the new year with a high degree of optimism regarding economic growth and corporate profitability. The consensus for a "soft landing" or "no landing" scenario, coupled with aggressive allocations to equities and commodities, underscores a strong "risk-on" environment. This collective sentiment suggests that the market is poised for continued upward momentum, particularly in growth-oriented sectors and regions like Europe.

Moving forward, the market is likely to be driven by these positive expectations, but investors should remain vigilant. The identification of an "AI bubble" and the highly "crowded" nature of trades like the "Long Magnificent 7" warrant careful consideration. Furthermore, the proximity of BofA's Bull & Bear Indicator to a "sell signal" serves as a crucial reminder that extreme optimism can sometimes precede periods of correction.

Investors should watch for sustained economic data supporting the "soft landing" narrative, the trajectory of central bank interest rate policies, and any signs of overheating in specific sectors or asset classes. Diversification, careful risk management, and a focus on fundamental strength will be paramount in navigating a market that, while optimistic, also presents potential vulnerabilities stemming from its very bullish positioning.

The coming months will reveal whether this widespread optimism translates into sustained gains or if the market's exuberance sets the stage for future challenges.

This content is intended for informational purposes only and is not financial advice