Bank of America warned that it is approaching a sell signal on stocks

Bank of America warned about the approaching signal to sell stocks, Bloomberg writes. According to the latest BofA survey, fund managers sharply increased their investments in this asset class in May. The number of those who held stocks overweight relative to the benchmark far exceeded those who held them underweight: the gap amounted to 50 percentage points versus 13 p.p. a month earlier.

Fund managers now have the largest overweight in the stock since January 2022 and are close to activating BofA's sell signal, wrote strategists led by Michael Hartnett.

Such strong fund inflows were driven by a strong season of corporate reports and expectations of a Fed interest rate cut, Bloomberg explains. Another sign of bullish sentiment was a sharp decline in the cache share of managers' portfolios: it fell to 3.9% in May, the steepest decline since February 2024, BofA said.

The main driver of the rally that brought global indices to historic highs in May remains the excitement around artificial intelligence, Bloomberg adds. Despite the sell-off in recent days, investors are still focused on semiconductor companies - since the end of March, the Philadelphia Semiconductor Index has soared by almost 50%. At the same time, BofA analysts point to the risks of severe market congestion: 73% of surveyed managers hold long positions on chipmakers' shares.

Hartnett's team confirmed the forecast announced last week: analysts believe that the beginning of June will be a favorable moment for profit taking after the rally and growth of inflation risks. The degree of drawdown, as BofA expects, will be determined by the dynamics of Treasury yields.

On Tuesday, Ma. 19, the yield on 30-year U.S. bonds jumped to 5.19%, reaching its highest level since 2007 and even exceeding it.

This article was AI-translated and verified by a human editor