An extreme in bullish equity sentiment has been reached. In July, fund manager equity weightings increased to +61% overweight. This is the highest since February 2011 and the second highest since the survey began in 2001.
In the past, when near 60% overweight, the risk/reward for equities has been unfavorable over the next several months (yellow shading). In 2011, SPX rose 2% versus falling 6% over the next 6 months. This culminated in a 20% fall in August 2011. The other prior examples of excessive bullish sentiment also resulted in poor risk/reward over the following months (chart from Short Side of Long).