Bank of America warns stocks face a summer selloff after fund manager cash fell to 3.9%, triggering a sell signal, as investor sentiment hit a three-month high driven by strong earnings optimism.Summary:Source: Bank of America Fund Manager Survey for May, published 27 May 2026, led by chief equity strategist Michael HartnettCash levels among surveyed fund managers fell from 4.3% to 3.9% in four weeks, the biggest such drop since February 2024, triggering a technical sell signalInvestor sentiment reached a three-month peak driven by robust earnings growth, putting markets within what Hartnett described as a chip shot of a formal sell signalThe median market decline following the 24 sell signals observed over the past 15 years is 1 percentOnly 16% of respondents expect the Fed to raise rates in the next 12 months, despite 2-year Treasury yields of 4.1% suggesting hikes are probableNearly two-thirds of investors surveyed see a 6% yield on the 30-year US Treasury as a likely outcomeFewer than half of respondents expect the Strait of Hormuz to be clear for crude transit by end of June; consensus oil price forecast for year-end is around $85The most crowded trade is long global semiconductors, cited by 73% of managers; the biggest tail risk identified is inflationCommodities overweight is the highest ever recorded in the survey; bond underweight is the deepest since June 2022Bank of America is warning that equity markets could be heading for a summer selloff after a sharp drop in fund manager cash levels triggered a technical sell signal, with investor sentiment stretched to a three-month high on the back of strong corporate earnings.The findings come from the bank's Fund Manager Survey for May, conducted among 170 managers overseeing close to half a trillion dollars in assets and published by a team led by chief equity strategist Michael Hartnett. The headline number was a fall in average cash holdings from 4.3% to 3.9% over four weeks, the steepest such decline since February 2024. A reading below 4% has historically been associated with sell signals, and Hartnett's assessment is that markets are now within a chip shot of triggering one formally. The median pullback following the 24 such signals recorded over the past 15 years is 1 percent, though the severity of any move this time will depend heavily on where bond yields go from here.The survey reveals a degree of complacency that sits uncomfortably alongside that risk. Only 16% of respondents expect the Federal Reserve to raise interest rates over the next 12 months, a strikingly low share given that 2-year Treasury yields are sitting at 4.1%, a level typically read as a reliable guide to the expected path of the Fed Funds rate, currently in the 3.50 to 3.75 percent range. The implication is that a meaningful portion of the investment community may be underpricing rate risk at precisely the moment it matters most.That tension is more visible elsewhere in the survey. Almost two-thirds of respondents believe the yield on the 30-year US Treasury bond could reach 6%, a level that would represent a significant tightening of financial conditions and a material headwind for equities. Inflation is identified as the biggest tail risk, and the positioning data reflects that concern: the overweight in commodities is the highest the survey has ever recorded, while the underweight in bonds is the deepest since June 2022, when US inflation was running at 9%.Geopolitical risk is also registering. Fewer than half of those surveyed expect the Strait of Hormuz to be open for unimpeded crude transit by the end of June, a finding consistent with the survey's consensus year-end oil price forecast of around $85 a barrel. The most crowded trade remains long global semiconductors, identified by 73% of respondents.Hartnett uses the survey's findings to flag potential contrarian opportunities, pointing to fixed income, the US dollar, underperforming UK assets, and consumer stocks that have struggled as petrol prices have risen. Whether those trades find takers will depend in large part on whether the summer selloff the survey implies actually arrives, and how far bond yields climb in the weeks ahead.Stock market, in a nutssell, right now. ---The drop in cash levels below 4% is a mechanical sell signal with a track record: the median market decline following the 24 instances observed over 15 years is 1 percent, modest but consistent. Bond yields are the key variable determining how deep any summer pullback runs, and with two-thirds of surveyed managers targeting a 6 percent yield on the long bond, the rates outlook is far more hawkish than current equity pricing implies. The record overweight in commodities and the deepest bond underweight since mid-2022 reflect genuine inflation anxiety sitting just beneath the surface of an apparently buoyant market. This article was written by Eamonn Sheridan at investinglive.com.