Investors beware: Red flags are going up across the stock market.

By Brett Arends

Now is a good time to check your risk level

Be fearful when others are greedy, says legendary investor Warren Buffett.

It's always a good time to check the risk in your retirement portfolio and to ask yourself what you would do if - if - the stock market fell by, say, a third or even half.

That's what can happen in a bear market, and often does.

It may be a particularly good time to ask that question now. Red warning flags are springing up all over Wall Street, and they are becoming increasingly hard to ignore.

The latest comes from Bank of America's monthly survey of global money managers, which shows alarming levels of complacency among the people managing many of the world's top investment institutions.

Actually, "alarming" isn't the best word. "Surreal" might be better.

More than 170 money managers handling, in total, nearly $500 billion in investments, told the bank's latest survey that they are enormously bullish on stocks and are taking on very high levels of risk in their portfolios.

At the same time, a majority tell the bank that they think stocks are overvalued, that artificial-intelligence stocks in particular are in a "bubble," and that the bursting of that bubble constitutes by far the biggest individual risk to the market.

Confused? You are not alone. But this is disturbingly normal in this industry. Nobody wants to be the first to jump off the bandwagon, no matter how close it gets to the cliff, for fear of missing out.

The bank reports that on 20 separate occasions since 2002, fund managers have let the cash balances in their portfolios drop to 3.7% of the total value or less, "and on every occasion stocks fell and Treasurys outperformed in the following 1-3 months."

Cash levels in the latest survey? Oh ... 3.7%.

Yikes.

A majority of fund managers also warn that they expect long-term interest rates on longer-term U.S. Treasury bonds to rise if the Supreme Court throws out some or all of President Donald Trump's revenue-raising tariffs. But apparently that's not enough to scare them out of the stock market, either. Actually, 34% of managers say they think that if the court throws out the tariffs and yields rise, stocks will also rise.

Cue my long-running belief that pretty much everything you need to know about Wall Street you could learn from the Marx Brothers.

(Incidentally, the few assets in which fund managers reveal they are heavily underinvested include cash, energy stocks, the shares of consumer discretionary and consumer staples companies, and, as usual, British stocks.)

The survey was conducted earlier this month - just before the selloff that has cut the S&P 500 SPX by 3% in a handful of days. The main stock-market index has now fallen below its 50-day moving average, another signal that has been known to portend trouble.

The latest fund-manager survey comes just a day after Jeffrey Gundlach, the so-called bond king, warned about market danger ahead and urged investors to move a remarkable 20% of their portfolios into cash or short-term Treasury bills. Gundlach thinks the average investor holds too much of their money in stocks, and especially U.S. stocks, and too much in bonds as well.

And this came just days after the news that Michael Burry, the hedge-fund manager who made a fortune predicting the global financial crisis and who was made famous by the book and movie "The Big Short," had deregistered his hedge fund.

It's an old Wall Street saying that a bull market doesn't end "till the last bear turns bullish," or at least until they capitulate. Burry deregistering his fund doesn't prove anything about the markets, of course, but it's the sort of thing that you tend to see at the peak. (It was at the peak of the dot-com bubble, in early 2000, when all the fund managers who had resisted the madness got fired.)

Burry has big bets against highflying AI stock Palantir (PLTR), which is currently trading at $170 (down from $208 a few weeks ago). Last week on the social-media platform X, he revealed that he owned put options on Palantir that will make a profit if the stock falls below $50 by 2027. Puts are derivatives - bets that a stock will fall. Burry said the options cost him $1.84 each. The only 2027 Palantir puts that were that around price in recent months are those that come due in January 2027, some 14 months from now.

It may be tempting to see the recent selloff as an opportunity to "buy the dip," but so far the S&P 500 has fallen just 3% from its record high a few weeks ago, and the Nasdaq composite COMP is down just over 5%.

Such declines are normal stock-market volatility and a fraction of what to expect if we were to fall into a bear market. One may come, or it may not. But investors should ask themselves whether they are ready if one does.

-Brett Arends

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11-19-25 1504ET