BofA Bull-Bear Indicator Signals Retreat From Risk Assets
AI-generated image · Bay Street Wire
Strategists warn of extreme investor optimism, urging a rotation into defensive assets as the market hits a five-year high.
Bank of America Corp. strategists are warning that investor bullishness has reached extreme levels, signaling a time to reduce exposure to risky assets. According to reporting from the Financial Post, the bank's bull-and-bear indicator rose to 9.7, marking its peak since 2021.
In a note led by Michael Hartnett, the team identified several drivers of this optimism, including tighter credit spreads, strong inflows into high-yield debt, and broadening equity markets. Hartnett stated that the firm remains in the "Retreat/Rotate not Reload camp," recommending that investors rotate into the U.S. dollar, duration, and defensive assets to protect portfolios from potential negative surprises regarding monetary policy, the economy, and artificial intelligence.
This warning arrives as equities hit record highs in both Europe and the United States. According to the Financial Post, U.S. equities saw net inflows of US$9.6 billion in the week ending Aug. 5, based on EPFR Global data cited by BofA. While investors recently rushed back into semiconductor stocks following positive results, the BofA team suggests a move away from these risk assets. Market participants are now looking toward the U.S. jobs report for signals on Federal Reserve policy, as stronger-than-expected data could lead to a pullback by reinforcing the belief that interest rates will remain higher for longer.