Bank of America Strategists Say US Stocks Show More “Bear-Market” Signposts, Urge Profit-Taking

Bank of America Securities told investors that it is becoming harder to justify being fully exposed to US stocks after a strong run, warning that more “bear market signposts” are clustering and suggesting it is time to take profits. The message, echoed in a June 5 research update and resurfaced in reporting on June 8, comes as Wall Street digests a market that has risen on broadly improving sentiment while internal risk indicators have shifted.

In its note, Bank of America lowered its year-end S&P 500 target to 7,100, implying roughly 6% downside from current levels at the time. The strategy team pointed to how the index’s headline gains have masked growing internal divergence, citing an S&P 500 up about 11% year-to-date, with forward price-to-earnings multiples compressing to about 21 times from about 22 times earlier in the year.

BofA Securities said seven of 10 bear-market indicators it tracks are now “triggered,” aligning with patterns seen ahead of prior market peaks. It also highlighted that dispersion among stocks has risen to post-COVID extremes, a dynamic where a small portion of the market can lift the index even as many individual names lag.

Valuation and expectations were another focus. The bank said high price-to-earnings stocks have led low price-to-earnings stocks by a wide margin, which it interpreted as a sign of excessive speculation. It also said long-term growth expectations have breached levels that historically have left equities vulnerable to disappointment, a warning that can become relevant if economic data or corporate results fail to meet optimistic assumptions.

Technology was treated as the clearest pocket of risk. Within the sector, Bank of America cited a spread between the best- and worst-performing quintiles’ median stock of about 120 percentage points, the widest since February 2000, when it said a similar pattern appeared ahead of a major 2000 peak. The bank also said technology fundamentals have weakened on several metrics, including stalled cash-flow conversion, increased supply in investment-grade and equities, slower buybacks relative to market capitalization, and an outlook for hyperscaler capital expenditures that it said is nearing levels close to total operating cash flow by year-end.

Separately, Bank of America strategist Michael Hartnett has been using the firm’s proprietary “Bull & Bear Indicator,” a composite sentiment gauge that can trigger contrarian indicates for risk assets. In one recent report, it said the indicator rose to 8.0 from 7.8 and that this level has historically preceded drawdowns, with the note describing an average decline of about 2% to 3% over the following two to three months when sell indicates have appeared since 2002.

Context matters because Bank of America’s market strategy outputs influence how institutional clients think about asset allocation and portfolio positioning. The bank describes its Global Markets business as providing research and market insights, along with liquidity, hedging, and services across debt, equity, commodities, and foreign exchange markets.

Still, the firm did not publicly lay out a single, specific trigger that would force an immediate market turn, and much of what investors ultimately want to know, such as the exact timing and magnitude of any correction, remains a matter of interpretation. Even in its cautionary framing, BofA’s strategists suggested investors may not need to make drastic moves immediately, pointing instead to upcoming macro catalysts and a potential disconnect between overall optimism and narrower parts of the market. The next things traders will watch are inflation readings and the path of interest-rate expectations, which the bank flagged as important for when risk appetite might need to cool.