Equities around the world enjoyed $11.6 billion of inflows this week as investors turned more optimistic, strategists said in a note branding the stampede into stocks "the most consensus trade in the world".
This was the largest flow of money into stocks since June, while bonds had their 30th straight week of inflows, BAML reported, citing data from EPFR.
The bank's indicator of investor sentiment rose to 7.4 as positioning reflected renewed optimism and a rush not to miss out on stock market highs, though they warned that a correction could be around the corner.
A fall in fund managers' cash positions to 4.4 percent and an acceleration of weekly flows to high yield and equity funds to more than $10 billion would trigger BAML's "sell" signal, strategists said, adding that previous sell signals have preceded sharp market falls.
The most obvious catalyst for a sell-off would be wage and inflation data that could bring back a "fear of the Fed" as the central bank enters a monetary policy tightening cycle after years of ultra-low interest rates, strategists predicted.
"Bubble in yield will continue until investors, via inflation, begin to fear the Fed," they said, pointing to nearly $1 trillion of inflows into investment grade and emerging market debt funds in the past 10 years as investors hunted for returns.
This week saw the 42nd consecutive run of flows into investment grade bond funds, while emerging market debt has drawn in money in 37 of the past 38 weeks.
The next data point on inflation, CPI figures from the U.S. due at 1230 GMT, could cause the MOVE index of bond market volatility to jump if it comes in at 0.4 percent, higher than the consensus forecast of 0.2 percent, strategists said.
Active stock-picking funds showed signs of a revival this week, drawing their first inflows in 11 weeks as better performance pulled investors in.
U.S. equity mutual funds have on average beaten the S&P 500's gains this year, strategists pointed out, a big improvement on their five-year performance which has lagged the index.
Passive index-tracking funds retained their dominance, however, with $9.6 billion of inflows this week, bringing the year-to-date total to $332 billion against $96 billion of outflows from long-only funds.
Emerging market equities also remained resilient, drawing their strongest inflows in 21 weeks as strength in the dollar failed to puncture widespread appetite for the asset class.
Flows into cyclical sectors such as financials, materials and tech demonstrated investors' exhilaration about the global economy, while defensive sectors such as utilities and real estate saw outflows.
(Reporting by Helen Reid; Editing by Hugh Lawson)
By Helen Reid