Bank of America Advises to Exit Risk Assets This Summer, Focus on Treasuries, High-Yield Stocks, and the Dollar

Bank of America’s Chief Investment Strategist Michael Hartnett has issued a warning, stating that the bank's "Bull & Bear Indicator" has reached a historical extreme level of 9.6. The latest fund manager survey shows that investor optimism is based on four assumptions: a soft landing for the economy, no rate hikes from the Federal Reserve, no cuts in AI capital expenditures, and the Democrats not sweeping the midterm elections. Hartnett refers to this combination as "no landing, no hike, no cut, no sweep," and notes that there are almost no short positions in the market. Fund flow data indicates a net inflow of $55.8 billion into U.S. equities, while money market funds experienced a net outflow of $119.6 billion, marking the largest single-week cash withdrawal since April 2026; the technology sector saw a cumulative inflow of $48.8 billion over three weeks, setting a historical record. Hartnett recommends exiting risk assets this summer and shifting towards long-duration Treasuries, defensive sectors, high-dividend stocks, and the dollar. He points out that the ETF MAGS, which includes major U.S. tech giants, is a key indicator to watch; if MAGS falls below $65, it will drag down cyclical sectors, while a breakout above $70 would signal a re-entry point. The biggest risk lies in the possibility that large-scale tech companies announce cuts to AI capital expenditures, which could trigger significant negative impacts on growth and asset prices, catalyzing short positions in banks, brokers, and industrial stocks.

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