Warning: Institutional Cash Allocation Falls Below 4%!S&P 500SPCFD:SPXSwissquoteWhile the S&P 500 is trading close to its all-time high, the Federal Reserve is set to announce a new monetary policy decision this week, and the biggest U.S. technology companies will report their quarterly earnings. Last week, I highlighted the technical signal that should absolutely be avoided to prevent the semiconductor sector from entering a deep correction phase. The chart below will take you to that analysis. A good market analyst must, above all, follow the trend, and the primary trend of the S&P 500 remains bullish. Therefore, every short-term correction (lasting several trading sessions or, at most, a few weeks) should be viewed as an opportunity to initiate or increase positions in the direction of the prevailing trend. However, as with every long-term market cycle, there comes a point when technical warning signals begin to emerge. These signals can provide an early indication of a potential medium-term market reversal. Among the key indicators to monitor is the percentage of cash held by institutional asset managers. Put simply, asset managers allocate their portfolios among cash, equities, and bonds. Historically, whenever the cash allocation has fallen below 4%, it has served as a warning that the equity market had reached an extreme overbought condition. This is precisely what Bank of America's latest monthly survey of global fund managers reveals: the average cash allocation has declined to just 3.6% of assets under management, down from 4.1% the previous month. Such a low level has not been seen since 2021. In practical terms, this means institutional investors are already heavily invested in equities. When cash reserves become this limited, their ability to fuel another wave of buying diminishes significantly, while even a minor disappointment can trigger profit-taking. History also shows that falling below the 4% threshold does not automatically mark the market's peak. Rather, this signal indicates that investor optimism has become extreme and that the risk/reward balance is gradually deteriorating. In both 2000 and 2021, it preceded periods of weak market performance, although with a lag of several weeks or even several months. This is therefore not an immediate sell signal, but rather an invitation to strengthen risk management discipline. In the coming days, the market's reaction to the Federal Reserve's decision and to the earnings reports of the major technology companies will be crucial. If positive news is no longer enough to push stock indices higher, then this exceptionally low cash allocation could become a warning that investors should not ignore. The chart below illustrates the evolution of institutional cash allocations. The data comes from the BofA Fund Manager Survey (FMS). Cash currently represents 3.6% of total institutional assets under management. Below 4% is considered a warning zone for the equity market. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions. This content is not intended to manipulate the market or encourage any specific financial behavior. Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. 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