Financial institution of America says investor bullishness has climbed to its highest stage in practically 5 years and is a contrarian warning for markets. As monetary situations tighten owing to the backup in bond yields, the financial institution recommends buyers “retreat from danger property and/or rotate into defensives,” together with shopper staples, actual property funding trusts, small cap and biotech shares, together with the U.S. greenback . These investments could possibly be much less susceptible than banks, industrials and semiconductors, in response to the financial institution’s funding strategists. The financial institution’s inside “Bull & Bear Indicator” simply rose to 9.7, its highest studying since 2021, from 9.4, fueled by sturdy high-yield bond flows, tighter spreads on world high-yield and Tier 1 bonds together with a stronger world inventory market breadth. Any sentiment studying above 8 is a promote sign and a studying beneath 2 is purchase sign, Financial institution of America says. Financial institution of America’s warning comes at a time when money is pouring into markets. Weekly flows totaled $32.9 billion into shares within the newest week, comprised of $40.1 billion into ETFs and $7.2 billion leaving mutual funds. U.S. equities attracted $9.6 billion, placing inflows at an annualized report tempo of $652 billion to date in 2026. Weekly inflows included $53.7 billion into money and $23.1 billion into bonds, whereas gold and crypto attracted $0.9 billion and $0.6 billion, respectively. In fastened revenue, investment-grade bonds attracted $10.2 billion, or an annualized report influx of $527 billion this yr, whereas high-yield bonds drew $4.1 billion, their largest weekly influx since July 2024. Financial institution loans added one other $1.4 billion, with annualized inflows on tempo for his or her greatest yr since 2021. There have been some indicators of cooling in crowded trades, akin to tech funds shedding $0.7 billion, their first outflow in six weeks. Semiconductor ETFs equally noticed $2.4 billion in outflows. However, tech inflows are operating at an annualized report tempo of $217 billion this yr, Financial institution of America mentioned. The financial institution’s broader asset-allocation stance stays “lengthy shares, brief bonds,” because the economic system continues to rely wealth impact spending from rising fairness holdings and the AI data-center capex increase. However a mix of upper bond yields and a weaker greenback may ultimately drive a shift in asset allocation from shares to bonds, in response to Financial institution of America. One other warning signal would come from rising bond yields alongside falling financial institution shares. “‘Up-in-yields, down-in-banks’ would be the canary within the coal mine,” the financial institution mentioned.
