BofA Survey: Global Semiconductors Remain the Most Crowded Trade, Short US Treasuries Second

Bank of America's latest Global Fund Manager Survey reveals that investors have grown less optimistic about the macroeconomic outlook, while their positioning in technology stocks remains near the most extreme levels seen in six years. The poll, conducted from October 2 to October 8, gathered responses from 161 participants who manage a combined $453 billion in assets.

The monthly Bank of America Global Fund Manager Survey (FMS) is among the most closely watched reports in finance. It queries roughly 200 to 400 institutional fund managers—those overseeing hundreds of billions of dollars across hedge funds, pension funds, and mutual funds—about their current market positioning.

Because extreme positioning can highlight where consensus trades are most susceptible to disappointment, the survey is frequently used as a contrarian indicator. However, crowded positioning alone is not reason enough to bet against a trend. Opportunities arise when stretched positioning lines up with a catalyst that shifts market expectations.

Fund managers are now more overweight technology stocks than at any point since August 2020. The share of respondents holding an overweight position in the sector rose to 37% from 30% in September, and global semiconductors remain the most crowded trade. Meanwhile, investors have cut their exposure to banks by the largest margin since March 2023. Even with sentiment softening, investors remain broadly positive on the macroeconomic outlook, leaving equities vulnerable if economic activity or corporate earnings come in below expectations.

The survey identifies a disorderly rise in bond yields as the biggest tail risk to markets, with an AI bubble ranking second. Short US Treasuries is the second-most crowded trade. Should inflation moderate or economic growth weaken, Treasury yields may fall, prompting investors to unwind bearish bond positions.

For the first time in several months, investors have also turned negative on the global growth outlook. A net 4% now expect the global economy to weaken over the next 12 months. Further deterioration in growth expectations could pressure stock markets and lead to lower Treasury yields.

With the US midterm elections scheduled for November 3, elevated energy prices, inflation worries, and geopolitical tensions loom. Investors anticipate a Democratic House and a Republican Senate, while 31% foresee a Democratic sweep. In that latter scenario, 32% expect bond yields to rise and equities to fall, while 22% predict a decline in both yields and stocks.

Prediction markets have increasingly leaned toward a Democratic sweep as election expectations evolve amid macro and geopolitical developments. A Democratic sweep has certainly become more probable given the turmoil caused by Trump since last year.

It's worth noting that even a Democratic sweep wouldn't alter much, as Trump would retain authority to continue the Iran war or impose tariffs. It could, however, reduce fiscal concerns, supporting long-term bonds and leading to a drop in Treasury yields. The stock market might respond positively at first if Treasury yields fall, but the US-Iran war and deteriorating growth expectations could eventually drag it to new lows.