The latest Bank of America Merrill Lynch survey of investment managers came out on Tuesday and it showed incredibly low allocations to equities, high allocations to cash, and overcrowding in the long treasury trade. Let’s break down each aspect of those three investment categories.

First, the funds showed an overall allocation of 21% to global equities, and that is the lowest equity allocation since March 2009 at the end of the bear market. The allocation dropped by 32% in the month of May, and that is the second biggest monthly drop in the history of the survey.

The assets being moved out of equities appears to be going into cash and bonds. The cash allocation jumped from 4.6% to 5.6%, and that is the highest cash level since 2011. The U.S. was dealing with a debt-ceiling problem in 2011 and that had investors spooked at that time.

As for treasuries, for the first time on record, the survey showed U.S. Treasuries as the “most overcrowded” trade idea. The attraction to treasuries is two-fold—investors are seeking safety at this time, and with the Fed expected to lower rates, treasury prices are expected to rise.

Allocations to bonds jumped sharply in May, climbing by 12% and that caused the allocation to record its highest reading since September 2011.

The BAML survey has been conducted for 23 years now, so it has been around for two different bear markets. The survey includes investment managers that manage approximately $600 billion in assets.

It is interesting to look back at some of the headlines concerning the survey to gauge how to use the information. For instance, here are two that caught my eye:

“Fund managers haven’t been this bearish on global growth since 2008 …” October 2018

“Investors gloomiest in a decade about world economy: BAML survey,” December 2018

The top three reasons listed for the bearish outlook were the trade way, recession fears, and monetary policy concerns. The trade war was listed by the greatest number of participants at 56%.

Like most sentiment indicators, I usually view them from a contrarian viewpoint. I have been using sentiment to analyze individual stocks and the overall market for almost 20 years now and I have to say, this is a highly unusual scenario.

Usually when we see low equity allocations, it is because the market has already turned lower and is in a bear market. Very rarely do we see low equity allocations when the indices are near all-time highs. As I mentioned before, the last time the equity allocation was at 21% was at the bottom in 2009. If we look at the chart below, the ratio of managers recommending overweighting equities versus overweighting bonds, we see that the ratio is about even right now.

The ratio was extremely low in late 2008 and showed peaks in 2010, 2013, and late 2017. With the exception of the 2013 peak, the other high readings came just ahead of corrections.

As a contrarian, I want to say that the survey results are a bullish sign for the market, but that’s hard to do with the current investing landscape. The trade war has yet to be resolved and as long as the market continues to move higher and the economy keeps plugging along, there is little pressure on the Trump Administration to expedite a deal.

In the interim, there is nothing to suggest that inflation is a problem right now and with concerns about a global economic slowdown, the current central bank path seems to be for cuts to interest rates around the world. The Fed is being pressured to make a cut, but seems to be standing its ground—for now.

One interesting note about the BAML survey was that the fund managers made some predictions about the trade war and about the Fed. They expect the Fed to cut rates if the S&P falls to 2,430 and they expect President Trump to resolve the trade issue of the index falls to 2,350.

Those levels are 16.8% and 19.5% below the current level of the S&P, respectively. I would hope that both the Fed and the President would take action before we reach those levels.