Bank of America reports that its internal 'Bull & Bear Indicator' has risen to 9.7, the highest since 2021, driven by strong inflows into high-yield bonds and a robust stock market.
This level is considered a sell signal, prompting the bank to advise investors to reduce exposure to riskier assets and consider defensive sectors such as consumer staples, real estate investment trusts, small-cap stocks, and biotech.
The recent surge in cash inflows into the market, totaling $32.9 billion in the latest week, includes significant investments in stocks and bonds, with U.S. equities alone attracting $9.6 billion. However, there are signs of cooling in previously popular tech funds, which experienced outflows for the first time in six weeks.
Despite this, tech investments are still on track for record inflows this year. Bank of America's broader strategy remains 'long stocks, short bonds,' but warns that rising bond yields and a weakening dollar could necessitate a shift back to bonds. The bank highlights that a decline in bank stocks alongside rising yields could serve as a critical warning signal for the market