"The big fall in markets will be an autumn, not summer event."

In global markets, all signs of sentiment are pointing up. And it's that very unbridled enthusiasm that could spell their downfall.
But before we get into the negative implications, let's take stock of everything that shows just how overtly bullish investors are feeling right now.

First, private client cash levels have dropped to a record low as a percentage of total assets, according to data compiled by Bank of America Merrill Lynch. That means investors are feeling more emboldened than ever to put that money to work in the market. They're choosing that over holding money on the sidelines — a risk-averse move typically associated with uncertainty.

Institutional investors are also holding the lowest levels of cash since the start of the eight-year bull market, survey data compiled by Citigroup show. The measure now sits at less than one-third of a multi-year high reached in 2016.
Second, active equity funds just absorbed their biggest inflows in 2 1/2 years, according to BAML.

Third and lastly, in perhaps the most direct reflection of swelling confidence, global markets are hitting records. The S&P 500 and its more tech-heavy counterpart, the Nasdaq 100, hit all-time highs this past week. The gauges are up 265% and 466%, respectively, over the course of the bull market.

But there's a downside to flying too close to the proverbial sun — sooner or later, your wings will melt. BAML sees that happening in the second half of the year as the bullish conditions outlined above overheat further.
A "big fall in markets" will be an "autumn, not summer event," strategists at Bank of America Merrill Lynch wrote in a client note. "Icarus won't soar forever."

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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