Bank of America strategists have stated that as more “bear market warning signals” emerge, the U.S. stock market is gradually approaching a cyclical top, and investors should consider taking moderate profits. In a report released on June 5, the BofA strategy team led by Savita Subramanian noted that an “excessive number of danger signals” have already appeared in the market, recommending a more cautious investment approach. Among a series of bear market warning indicators tracked by BofA, approximately 70% have been triggered—a proportion broadly consistent with the average level seen during historical market tops.
On the valuation front, BofA believes the S&P 500 is currently significantly overvalued. Looking at 20 major valuation metrics, 17 of them show the S&P 500 to be statistically overvalued; compared with the 2000 Internet bubble period, current valuation levels are even higher on eight of these metrics. BofA’s monitored risk indicators cover multiple areas, including consumer confidence, economic growth expectations, M&A activity, credit market stress, and the degree of financial tightening. Among these, the Federal Reserve’s Senior Loan Officer Opinion Survey indicates that U.S. consumer demand continues to slow.
Despite this, BofA has not completely turned bearish on the tech sector. The firm pointed out that the fundamentals of some large tech companies remain solid, with metrics such as leverage levels, valuation reasonableness, and capital intensity in a healthy state. However, compared with November of last year, a number of key financial metrics have worsened: the rate of corporate cash flow conversion has stagnated, issuance of investment-grade bonds and equity financing has continued to increase, the proportion of stock buybacks relative to market capitalization has declined, and capital expenditures by large cloud computing and AI infrastructure operators have risen rapidly. BofA expects that by the end of this year, these tech giants’ capital expenditures as a percentage of operating cash flow will approach 100%, a sharp increase from approximately 40% in 2023. Subramanian warned that the extreme price movements observed recently in the market could signal rising underlying instability.
BofA has not entirely dismissed individual stock investment opportunities and remains bullish on the investment value of certain S&P 500 constituents, but it is cautious about the performance of the overall index as calculated on a market-cap-weighted basis. Notably, BofA maintains its year-end 2026 target for the S&P 500 at 7,100 points. As of Monday’s close, the index had risen 0.3% to approximately 7,406 points, which is already above the firm’s year-end target level. This suggests that even if some high-quality individual stocks still offer structural opportunities, the scope for further upside in the overall U.S. stock market may be relatively limited.
Following last Friday’s broad market sell-off, JPMorgan’s trading desk has turned cautious on the near-term outlook for U.S. stocks. Andrew Tyler, head of global market intelligence at the firm, downgraded his equity view from “bullish” to “tactically cautious,” anticipating volatile markets in the short term primarily because investors may continue to reduce holdings in tech stocks that have rallied too much in the recent rebound. Tyler noted that the stock market may take several weeks to stabilize. Tyler believes that strong economic and corporate earnings fundamentals will still support the bull market, allowing for buying on dips, but the market faces a risk of an “imminent pullback,” making gradual position-building reasonable. If inflation data pushes bond yields higher, or if negative earnings reports trigger another sell-off in tech stocks, he would turn bearish; conversely, if progress toward a ceasefire in the U.S.-Iran war emerges, the market could see a bullish turnaround.
