Written by: Rita

Bank of America Bull & Bear indicator rises to 9.7, the highest since 2021, just one step away from a “sell” signal. In the past week, $52.9 billion flowed into cash, $32.9 billion into stocks, and $23.1 billion into bonds. In a Flow Show research note released on August 6, Bank of America said that the policy authorities’ intention to stand behind financial conditions is clear, and that last week’s coordinated currency intervention validated this view. Bank of America described the intervention as “the poor people’s LTCM event,” alluding to the Fed’s backstop behavior when the 1998 Long-Term Capital Management collapse occurred. But with the Bull & Bear gauge hitting extreme territory, credit spreads for AI hyperscale companies still widening, and uncertainty ahead of midterm elections building up, these are the key contradictions in today’s market. Bank of America’s recommendation is “retreat or rotate”—to move out of risk assets or rotate into defensive sectors, duration assets, and the U.S. dollar.

Divergent flows: Record inflows into equities, but the technology sector sees its first outflows

In the past week, fund flows showed a clear split. Equity fund inflows were $32.9 billion; on an annualized basis, full-year 2026 inflows would reach $652 billion, setting a historical record. Bond fund inflows were $23.1 billion; investment-grade bond funds have been flowing in for 18 straight weeks, with annualized inflows of $527 billion, also a record. Cash fund inflows were $53.7 billion. Precious metals have seen inflows for 5 straight weeks, and cryptocurrencies saw inflows of $600 million.

Technology had its first outflow in six weeks, totaling $700 million. Semiconductor ETF outflows were $2.4 billion as well—also the first in six weeks. However, annualized inflows into technology funds are still as high as $217 billion, a record. Infrastructure saw $300 million of outflows, the largest since March. For private clients, AUM is $4.5 trillion, with equity allocations at 65.7%, bonds at 17.4%, and cash at 9.6%. Private clients are moving back into T-bills (largest inflow since April) while selling T-notes; they are still net buyers of equities.

Bank of America’s Bull & Bear indicator rose from 9.4 to 9.7—the highest level since 2021—triggering a “sell” signal. The increase was mainly driven by strong inflows into high-yield bonds, tightening credit spreads for global high-yield and AT1 risk bonds, and improvement in the breadth of global equity indices. Bank of America notes that the old Bull & Bear indicator reading was 7.8.

Strategy view: Retreat or rotate; liquidity backstops, but political risk is rising

Bank of America’s strategy view is “summer retreat or rotation,” not “adding back.” It suggests pulling back from risk assets, or rotating into defensive sectors (staples), duration assets (REITs, small caps, and biotech), and the U.S. dollar. These assets can hedge the risk of tighter financial conditions and are defensive versus the consensus expectations of “no macro hard landing, no Fed rate hikes, no AI capex pullback, and no Democratic midterm sweep.”

Bank of America believes policymakers treat the stock market as “too big to fail.” The economy depends on the wealth effect (household equity holdings have increased by $700 billion this year, and by $900 billion in total in 2024 and 2025) and the AI data-center capex boom. The logic that prosperity in bonds ends and bubbles form still holds, but this time the “bond vigilante” event with “higher yields and a lower dollar” will force fiscal policy to pivot, along with asset allocation shifting from equities to bonds. “Rising yields, falling banks” will be the canary in the coal mine.

The past week’s joint currency interventions validated the policy authorities’ willingness to backstop financial conditions. Bank of America believes yield-curve control is a standby tool. If financial conditions tighten more than expected, policymakers may use this tool. Bond investors are currently the group with the strongest directional risk appetite.

The midterm election is the biggest macro variable in the second half of the year

Bank of America believes that the 2020s political populism = fiscal excess = nominal GDP prosperity. Over the past six years, the U.S. nominal GDP has risen from $20 trillion to $32 trillion, a 63% increase. But the midterm elections are a referendum on populist capitalists. Keeping the Senate majority is positive for markets. An analysis of the social-media keyword frequency of Trump’s policy priorities shows that in 2026, “Iran” and “taxes” move up the rankings, while “border,” “energy,” and “economy” move down. Bank of America recommends going long consumer stocks—this is the best beneficiary sector of Trump’s shift toward “affordability.” It also suggests going long gold to hedge the voter verdict in midterms that the K-shaped economy delivers to voters: “idiots, the problem is the economy,” which could trigger a year-end drop in yields, the dollar, and stocks.

Credit spreads for AI mega-cap firms are still widening. Bank of America believes the Mag 7 index needs to return above 50 to eliminate the threat of “cheap Chinese computing ending the AI capex boom.” Currently, optimism around EPS is high: 12-month forward EPS has risen 33%. This benefits from $35 billion of tariff tax refunds over the past three months, reversing the $75 billion EPS tariff impact from May to July 2025. Employment and profits are positively correlated, and the July nonfarm payrolls data will be the key variable. If employment is strong (NFP above 125k and unemployment below 4.1%), Warsh may turn back hawkish at Jackson Hole on August 28. If employment is weak (NFP below 50k and unemployment above 4.3%), that creates a contrarian opportunity for holding more duration and defensive assets. The midterm election is reshaping the macro narrative. Liquidity backstops provide downside protection, but Bull & Bear indicators rising to 9.7 suggest upside has been sufficiently priced.

Disclaimer

This article is a整理 and interpretation of a research report by a third-party brokerage (Bank of America Securities, August 6, 2026) in the context of trend research, combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments cited in the article are solely the views of the brokerage’s analysts; they represent only the position of that institution and do not represent the views of trend research, nor do they constitute any investment advice.

There is risk in the market; decisions must be independent. This article should not be used as a basis for buying or selling any securities.