What has been called the least believed bull market in years has recently gotten another shot of skepticism as the combination of geopolitical tensions, US interest rate hikes on the horizon, and concerns about asset valuations has pushed cash holdings to the highest level in two years, according to the Bank of America Merrill Lynch August Fund Manager Survey.

Cash Holdings Hit Two-Year High: Bank Of America Survey

“The market melt-up is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher rates,” said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch Research.

Asset managers look to cash holdings and commodities

The survey found that net 27% of respondents are overweight cash holdings, compared to net 12% in July, pushing it from 4.5% to 5.1% of global portfolios. At the same time, the net percentage of asset managers who are overweight equities fell 17 points to a net 44% in August, and fewer managers are underweight on commodities, down from net 15% in July to net 5% this month.

Global growth predictions have also taken a hit, with a net 56% of respondents expecting the economy to strengthen this year compared to 69% in July. That’s far from bearish, but still shows how much confidence has fallen in a short period of time.

Sentiment on Europe hit hard

The Bank of America Merrill Lynch survey found that a geopolitical crisis is the tail risk most people were concerned about, and with so many flashpoints right now it’s easy to see why. As the only developed market with tension right on its doorstep, Europe has had the biggest drop in investor sentiment since July, though the trouble with Banco Espirito Santo SA (ELI:BES) probably plays just as much a role in the market’s change of heart.

Even though it has been a market favorite for most of the year as value investors in particular have had to look beyond the US for attractive prices, asset allocators are now a net 13% overweight Europe, down 22 percentage points since last month, and a net 30% of investors think that Europe has the worst 12-month profit outlook of any region in the world. This pessimism is also building consensus that the euro could depreciate through the rest of this year, not that Eurozone economies would necessarily mind.