• Investors are holding the most cash since April 2001, according to BofA's global fund manager survey. 
• The October survey "screams macro capitulation, investor capitulation, and crucially start of policy capitulation." 
• A "big low, big rally" looks set for the first half of 2023 when Fed rate cuts become consensus, BofA said. 

Fund managers have the highest amount of investor cash to deploy in two decades, according to a Bank of America survey released Tuesday, a development taking shape as the stock market may shift into rally mode early next year. 

The global fund managers survey "screams macro capitulation, investor capitulation, and crucially start of policy capitulation," Michael Hartnett, chief US investment strategist, wrote about the monthly survey. 

The October survey showed the average cash level in investors' portfolios was 6.3%, the highest since April 2001 and above the long-term average of 4.8%. The rate rose from 6.1% in September. 

The signal of policy capitulation is key as the investment bank is looking for the Federal Reserve to indicate it's ready to pivot away from rate hikes it's been using to bring down inflation by slowing economic activity. 

"We still say 'big low, big rally in [first half of 2023] when Fed cuts become consensus," Hartnett said. The October fund managers' survey indicated that 28% of respondents foresee lower short rates. That rate been at 65% at prior "Big Lows" in the market. 

Bank of America last week said a "Big Low" in markets is coming but it's still waiting for signs of panic from the Fed. The wait, however, continues as the economy is still too strong for policy makers to consider cutting rates. The fed funds rate stands at a range of 3% to 3.25%.  

For now, there are "tasty morsels for another bear rally" as long as US Treasury yields stay below 4%, BofA said. 

The widely watched 10-year Treasury yield on Tuesday was down by 3 basis points at 3.97%. The yield was around 1.6% at the start of 2022 but has scaled higher with the Fed ratcheting up its benchmark interest rate five times so far this year, with more hikes likely in November and December.

The core inflation reading for September was higher than emancipated at 6.6%.