By Allie Canal

Stocks came under pressure Tuesday but continue to hover near record highs, staging a ferocious comeback since their April lows.

But despite the rally, investor sentiment remains cautious as markets contend with a wave of uncertainty ranging from Trump’s tariff rollout and its inflationary ripple effects to the Fed’s murky rate-cutting path and, most recently, renewed geopolitical tensions in the Middle East.

Even as consumer sentiment has begun to rebound from its early-year lows, investor positioning tells a different story.

Data from market research firms SentimenTrader, Ned Davis Research, and Vanda, cited by Charles Schwab, show that equity exposure remains below historical averages, with mutual funds, hedge funds, and retail traders slowly rebuilding their risk positions.

That caution was echoed in Bank of America’s latest Global Fund Manager Survey released Tuesday, which showed a sharp drop in risk appetite with a net 28% of investors taking a more-cautious-than-normal level of risk in their portfolios.

(Source: BofA Global Fund Manager Survey)

The survey also revealed that equity allocations remain well below average, currently sitting one standard deviation below their long-term norm.

However, that caution, some strategists argue, may be more of a tailwind than a headwind for stocks.

"Sentiment can still be negative even with stocks back at all-time highs," Kevin Gordon, senior investment strategist at Charles Schwab, told Yahoo Finance.

Gordon described the recent rally as "definitely still hated," but a dynamic that's not unusual following sharp, unexpected sell-offs.

Tom Lee, head of research at Fundstrat, wrote in a recent client note that investors may be overlooking a stronger investment backdrop compared to early 2025, with more clarity on trade and tax policy and a potentially more dovish Fed.

"We’re so close to all-time highs, and yet investors are mostly negative still," he said. "This remains one of the most-hated rallies."

Strategists across Wall Street have also grown more bullish on stocks in recent weeks.

No fewer than 11 Wall Street firms lowered their S&P 500 targets amid the market sell-off in April, but at least eight of those have since raised their bets on where the index ends 2025.

The median S&P 500 target now sits at 6,100, signaling further upside potential.