BofA Indicator Triggers Sell Signal for Risk Assets, But Strategists Aren’t Rushing to Exit Stocks

Strategists at Bank of America say a widely followed market sentiment indicator has reached levels historically associated with weaker returns for risk assets.

However, despite flashing a contrarian sell signal, the bank does not believe investors are ready to significantly reduce equity exposure — particularly with expectations building around a potentially historic wave of initial public offerings (IPOs).

BofA’s Bull & Bear Indicator Reaches Sell Signal Threshold

Bank of America’s Bull & Bear Indicator climbed to 8.0, up from 7.8, triggering what strategists consider a contrarian warning for financial markets.

The increase was driven by:

• Strong inflows into technology stocks
• A record jump in fund managers’ equity allocations
• Cash levels falling to 3.9%, signaling greater investor risk appetite

According to strategists led by Michael Hartnett, there have been 17 similar sell signals since 2002. Historically, global equities recorded average losses of approximately 2%–3% over the following two to three months.

Why BofA Is Not Yet Bearish on Stocks

Despite the warning signal, analysts argue investors may avoid reducing positions before major IPO launches expected in the coming months.

The team also suggested tighter monetary policy responses could arrive later if inflation accelerates toward the 4%–5% range.

Rising bond yields and increasingly bullish market positioning have strengthened the case for profit-taking, although BofA believes broad selling pressure has not started yet.

Historic IPOs Have Produced Mixed Results

Strategists examined the impact of some of the world’s largest IPOs and found inconsistent outcomes.

Listings such as Alibaba and ICBC helped fuel further gains in Chinese equities.

In contrast, major offerings including Visa and AIA were followed by weaker broader market performance in the months that followed.

The findings suggest mega-IPOs can sometimes mark late-stage optimism rather than the beginning of sustained market rallies.

Wall Street and Main Street Continue to Diverge

BofA also highlighted a widening gap between financial markets and everyday consumer conditions.

Consumer stocks on an equal-weighted basis have dropped below post-financial crisis lows relative to the S&P 500.

At the same time, approval of President Donald Trump’s handling of inflation reportedly remains near 28%, reflecting continued pressure on household finances.

Consumer Stocks Could Become a Contrarian Opportunity

Strategists believe consumer-related equities may eventually become one of the strongest contrarian opportunities after a market bubble.

Meanwhile, they argue the most attractive long-term artificial intelligence investments may not be dominant technology giants, but smaller companies using AI to disrupt established industries.

Emerging markets and commodities also remain favorable long-term investment themes in BofA’s outlook.

Bonds Continue to Attract Investor Money

Investment flow data showed bonds remained the preferred asset class during the past week.

Key figures included:

• Bonds: +$30.5 billion inflows (56th consecutive week)
• Stocks: +$2.4 billion inflows
• Crypto: -$1.5 billion outflows (largest withdrawal since February)

Technology stocks attracted $9 billion, marking their strongest inflow since October 2025.

Meanwhile, U.S. Treasuries recorded $10.8 billion in inflows — the highest demand in nine weeks.

Financials and Emerging Markets Face Continued Pressure

Not all sectors benefited from investor optimism.

Financial stocks saw $2.4 billion in outflows, while materials lost $2.9 billion.

European equities recorded a sixth consecutive week of withdrawals, while emerging market stocks extended their losing streak to six weeks — the longest stretch since late 2024.