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Illustration: Aïda Amer/Axios

Money managers are not just bullish about the stock market, they're euphoric about the current and future state of the global economy, data from the Bank of America Merrill Lynch shows.

What's happening: BAML's monthly survey of fund managers from around the world finds investors are all in on the stock market, with global optimism rising by the most in 20 years and expectations of real economic growth jumping by the most in the history of the survey.

Why it matters: Investors have done a complete 180-degree turn in sentiment, moving from distrustful of the market's 2019 gains to full-fledged cheerleaders.

  • This is thanks to an expected pause in the U.S-China trade war and slight improvements in U.S. and global manufacturing, services and housing data.

Details: The survey saw a 43 percentage point increase in the number of investors expecting a stronger global economy in the next year, the biggest month-to-month jump on record.

  • There was a 91 percentage point turnaround in the number of investors who expect the 2-year/10-year yield curve to steepen, with the highest percentage of investors predicting steepening in three years.
  • Inflation expectations jumped by 29 percentage points.
  • More than half of investors surveyed (52%) expect equities to be the top performing asset class in 2020.

Further, fund managers now expect global production numbers to rebound to levels not seen in more than a year and earnings per share readings to be well above their current levels. Plus, a majority say they now want more companies to increase capital expenditures rather than reduce debt or improve their balance sheets.

  • Respondents now say they're holding the lowest cash allocation since November 2015, a 20 percentage point decline from last month.
  • Allocation to global equities rose 20 percentage points from October to net 21% overweight, the highest level in a year.

Watch out: "Investor sentiment and behavior is reacting to this breakout much differently than recent ones," Mark Hackett, chief of investment research at Nationwide, says in an email.

  • "The CNN Fear & Greed Index registered 'extreme fear' (<25 on a scale from 0-100) in August but is now in 'extreme greed' (91), indicating we may have gone too far too fast."

The last word: BAML's data isn't showing excess greed just yet, analysts say, but they caution the "easy part" of the market rally is over. Now comes the hard part.

Go deeper: Wall Street loves a party

Go deeper

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Why it matters: The sales of F-35 jets and attack drones to the UAE and a large supply of munitions to Saudi Arabia will be paused pending a review. That signals a major policy shift from the Trump era, and may herald sharp tensions with both Gulf countries.

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DHS warns of "heightened threat" because of domestic extremism

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The Department of Homeland Security on Wednesday issued an advisory warning of a "heightened threat environment" in the U.S. because of "ideologically-motivated violent extremists."

Why it matters: DHS believes the threat of violence will persist for "weeks" following President Biden's inauguration. The extremists include those who opposed the presidential transition, people spurred by "grievances fueled by false narratives" and "anger over COVID-19 restrictions ... and police use of force[.]"