Wall Street fund managers are increasing their equity allocations despite a shaky economic backdrop. Bank of America’s latest survey shows global equity allocations at a seven-month high, with cash balances remaining steady at 3.9%. Optimism is reflected in record S&P 500 and Nasdaq highs, but caution remains as sentiment hasn’t reached full euphoria.

Strategists at various firms have raised their S&P 500 forecasts, citing resilient earnings and an expected easing of interest rates by the Federal Reserve as driving factors for the market’s next leg higher. Nearly half of fund managers expect the Fed to cut rates multiple times in the next year, aligning with market expectations.

While stocks reach new highs, cracks are appearing in the rally. The most crowded trade on Wall Street relies heavily on megacap tech, and 77% of fund managers anticipate a “stagflationary” environment with sluggish growth, sticky inflation, and higher unemployment. This highlights the ongoing uncertainty in the macroeconomic landscape.

Consumer sentiment has declined, especially among households affected by tariffs and rising prices. Retail investors are increasingly bearish, and cracks are widening in the job market, with higher unemployment rates among young workers. Despite this, consumer spending has remained strong, but economists warn of the potential impact of tariffs on prices.

Read more at Yahoo Finance: Investors haven’t been this bullish on stocks since February