Fueled in part by decreasing pessimism toward bank stocks, investors are finally feeling better about the markets.

According to a Merrill Lynch survey of fund managers released on Thursday, optimism about growth prospects reached levels not seen since early 2004. And they're starting to put their money where their optimism is by unwinding bearish positions.

In particular, the percentage of survey respondents who have underweighted banks declined to 26% in April, from 48% in March. In addition, those fund managers who were overweight cash dipped to 28% from 41%, while those underweight equities fell to 17% from 41%.

"Improving sentiment on financials has decisively removed the log jam on sector rotation," said Gary Baker, co-head of international investment strategy at Banc of America Securities-Merrill Lynch Research. "This is enabling broader optimism about growth to feed into greater risk appetite and prompting a march out of defensives into cyclicals."

Technology is a popular sector right now, while pharmaceuticals-a favorite bear market hedge-is losing its allure. Fund managers are neutral on materials.

But the survey also cautioned that this new-found bullishness isn't a case of full-blown euphoria. "The consensus has shifted from apocalyptically bearish to reluctantly bullish," says Michael Hartnett, co-head of international investment strategy at Banc of America Securities-Merrill Lynch Research. "But it's important to note that asset allocators are still underweight equities, indicating they have yet to fully embrace the idea of a new bull market."

Elsewhere, survey respondents are bullish on China. And that has sparked a general bullishness toward emerging markets.