By Levin Stamm

(Bloomberg) -- Investors’ cash positions dropped below a critical threshold in a monthly Bank of America Corp. survey, triggering a so-called sell signal for equities at a time of rising doubts around lofty technology valuations.

The average cash held by global fund managers fell to 3.7%, something that has only occurred 20 times since 2002. Stocks declined and Treasuries outperformed in the following one-to-three months each time that happened, strategist Michael Hartnett wrote in a note.

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Stock markets are already showing signs of strain following a  rally in the MSCI All-Country World Index this year, as investors worry about a potential bubble in artificial intelligence stocks. The S&P 500 is now about 3% below its October peak, while swaps traders have lowered bets on a Federal Reserve rate cut in December.

With investor exposure to stocks still the highest since February in the BofA survey, Hartnett said the market would “correct further” without an interest rate reduction next month. Positioning is now “a headwind, not tailwind for risk assets,” the strategist said.

Pressure is rising on financial markets more broadly as investors reassess the outlook for economic growth at a time when tech behemoths continue to spend heavily on artificial intelligence. JPMorgan Chase & Co. Vice Chairman Daniel Pinto warned AI valuations are due for a reassessment, adding that any decline would reverberate across the stock market.

The BofA survey showed a potential AI bubble was ranked as the biggest tail risk, while for the first time in 20 years, investors said companies were overinvesting.

About 42% of respondents also expect international equities to be the best performing asset class next year, while only 22% expect US stocks to be in the lead. That ranking echoes a prediction by Goldman Sachs Group Inc. strategist Peter Oppenheimer, who sees US stocks lagging behind all their peers over the next decade.

The BofA survey was conducted between Nov. 7 and Nov. 13, and canvassed 172 participants with $475 billion in assets.

--With assistance from Michael Msika and Sagarika Jaisinghani.

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