BofA: Bull & Bear Rises to 9.7 Near Extreme, Advises Retreat or Rotation

According to TechFlow Research, BofA's Bull & Bear Indicator rose to 9.7, hitting the highest level since 2021, triggering a "sell" signal. In the past week, $52.9 billion flowed into cash, $32.9 billion into equities, and $23.1 billion into bonds. The technology sector saw its first outflow in six weeks ($700 million), and semiconductor ETFs saw an outflow of $2.4 billion. Credit spreads for AI hyperscalers continue to widen; BofA believes the Mag 7 index needs to return above 50 to eliminate the threat of "China's cheap computing power ending the AI capex boom." 12-month forward EPS rose 33%, benefiting from $35 billion in tariff rebates over the past three months. BofA strategy suggests a "Summer retreat or rotation," exiting risk assets or rotating into defensive sectors (consumer staples), duration assets (REITs, small-cap stocks, biotech), and the USD. BofA believes policymakers view the stock market as "too big to fail," and joint exchange rate intervention validates the willingness to backstop liquidity. The midterm elections are the biggest variable in the second half of the year; the Republican Party retaining the Senate majority is bullish for the market. BofA recommends going long on consumer stocks and gold to hedge against market volatility that K-shaped economy voters may trigger in the midterm elections.