Bank of America: 70% Bear Signals Triggered, US Stocks Near Peak

Bank of America warns U.S. equities are nearing a major market peak, with mounting bearish indicators prompting investors to lock in profits.

“There are too many red flags,” said Savita Subramanian, Head of U.S. Equity & Quantitative Strategy, urging a defensive market stance.

Extreme valuation risks flash late-cycle warnings

Around 70% of the bank’s bear-market indicators have been activated, matching thresholds seen at historical market tops. Key valuation red flags include:

• S&P 500 is overvalued on 17 out of 20 core metrics
• Eight valuation gauges exceed the 2000 tech bubble levels

Bearish signals also cover weak consumer demand (confirmed by the Fed’s latest SLOOS report), sluggish growth expectations, cooling M&A activity and excessive speculation in high-multiple stocks.

Severe market internal divergence

Strong index gains disguise severe underlying market fragility, with unprecedented stock dispersion:

• Tech stock performance gap between top 20% and bottom 20% hits the widest since February 2000
• Return spread between S&P 500’s best and worst 10% constituents reaches a post-pandemic high

“The strong index performance masks internal turmoil,” Subramanian noted, a typical precursor to market corrections.

Big-tech fundamentals deteriorate sharply

Though large-cap tech retains solid baseline leverage and capital conditions, key financial metrics have worsened notably since late 2024:

• Stagnant corporate cash conversion
• Rising investment-grade bond and equity issuance
• Declining stock buyback ratios
• Soaring capex for cloud and AI infrastructure

BofA forecasts big tech’s capex-to-operating cash flow ratio will hit nearly 100% by year-end, up sharply from 40% in 2023.

“Extreme price volatility may signal rising instability,” Subramanian warned.

Selective stock opportunities amid index risks

The bank rules out a broad market crash but warns against chasing the cap-weighted index. “We see opportunities among individual S&P 500 constituents, but not in the market-cap weighted index as a whole,” the report emphasized.

BofA’s year-end S&P 500 target stands at 7,100, firmly below its latest close of 7,406.