Bank of America: Take profits as seven bear flags flash

Bank of America’s U.S. equity strategy team advised clients on June 5 to reduce risk and take profits after seven of the firm’s 10 bear-market indicators activated. The note from Savita Subramanian was titled “Too many red flags. Take profits.” Subramanian wrote that the bank still sees selective opportunities within some S&P 500 names but not in the overall cap-weighted index.

The bank’s checklist includes measures such as tighter commercial and consumer lending standards, weak consumer demand, a surge in dealmaking and an index that screens expensive across most valuation metrics. The S&P 500 fell 2.6% on the Friday after the note, its largest one-day drop since October. The index had traded near a record 7,621 in early June and was below its 20-day moving average at roughly 7,442 when the warning was issued.

Bank of America’s year-end S&P 500 target is 7,100, implying about a 6% decline from levels at the time of the note. The 7,100–7,110 range sits near the 100-day average and recent chart support, which the firm identified as a key level for investors.

An independent gauge of crypto-market stress, the Crypto Canary Composite compiled by Charlie Quant Lab, entered a warning band weeks before the bank’s note. The composite read 69.1, reflecting maximum drawdown stress for bitcoin, a shrinking stablecoin supply and net cash outflows from crypto platforms. Because bitcoin has been moving in line with equities, analysts who follow the composite note that crypto stress has historically appeared two to six weeks before equity tops; the current pattern suggests a risk window extending into mid-July. The creators of the composite described the signal as suggestive rather than predictive.

Concentration and valuation indicators highlighted by Bank of America show a narrow market leadership. The gap between expensive growth stocks and cheaper value names reached a z-score of 2.89 in early June before moderating to about 1.12. The S&P 500 relative to its equal-weighted version peaked near 3.67 in mid-May and remained elevated, indicating a small group of names driving returns.

Large cloud and AI-focused companies are under pressure from capital spending. Bank of America estimated the four biggest AI builders are spending roughly $0.71 of every dollar of revenue on data centers and infrastructure. The bank noted that when buybacks end and share issuance rises, the group could approach break-even on cash flow after capex.

Not all strategists recommended a defensive stance. Morgan Stanley strategist Michael Wilson described the recent weakness as a healthy pullback that can be consistent with a year-end bullish view. Market participants are also watching an upcoming U.S. consumer-price report that could affect rate expectations and sentiment.

Bank of America framed its signal as part of a historical rule set that tracks conditions that have often preceded major downturns since 1990. The bank and independent crypto analysts presented their findings to inform positioning; both sets of indicators point to a near-term test between the S&P’s recent high near 7,621 and the 7,100 support area identified by Bank of America.