Bears at Bank of America Issue Another Warning: Market Overheated, Correction Risk Looming

Bank of America strategist Michael Hartnett warned that global stock markets are approaching a technical "sell" signal after hitting new highs this week. He believes that a 20% surge in just two months indicates an overheated market.

Hartnett cited data on fund flows and market breadth as evidence that investors are pouring into risky assets, with position allocations becoming increasingly stretched. Traders typically view this phenomenon as a bearish signal, as it may suggest that the market's buying power is nearing exhaustion, making prices vulnerable to corrections.

Hartnett pointed out that data shows inflows into stocks and high-yield bonds have reached 0.9% of total assets over the past four weeks. He said that if this figure rises above 1%, it would be a sell signal for investors.

Meanwhile, Hartnett said the market is also approaching an "overbought" zone. Currently, about 84% of national stock indices are trading above their 50-day and 200-day moving averages, and when this ratio reaches 88%, it will trigger his sell condition.

The report also cited data from EPFR Global, stating that global equity funds have attracted inflows of approximately $515 billion year-to-date, on track to record the second-highest annual inflows in history. On a weekly basis, cash funds attracted inflows of $94.8 billion this week, the highest level since January.

Bank of America's data suggests that traders are uneasy about the recent rapid pace of stock market gains.

The US stock market has recently rebounded sharply, with the S&P 500 index closing above 6,000 points on Friday for the first time since February 26. The Trump administration's tax cut policies, a more lenient stance on tariffs, and robust economic data have collectively fueled market optimism.

It should be noted that Hartnett has been bearish on US stocks this year and has called for investors to prioritize bond allocations. In a report on May 8, he said that the current rebound in US stocks may have already ended. However, since then, the S&P 500 index has risen by about 6% over a one-month period.