Bank of America strategist Michael Hartnett believes investors remain overwhelmingly optimistic despite long-term bond yields reaching 5%, although he cautions that several warning signs associated with the end of major bull markets are beginning to appear.
In his latest Flow Show publication, Hartnett identified three developments that have historically brought market booms to a close: rising bond yields that make capital more expensive, weakening performance among market leaders, and election-driven political pressure as voters demand lower inflation or stronger employment conditions.
“We’re getting there,” Hartnett wrote, “but for now asset allocation frozen bullish, positioned for late-cycle greed, not at all tempted by 5% yields at the long-end.”
Hartnett also drew comparisons with 1994, suggesting that year could offer valuable lessons for investors looking ahead to 2026.
At that time, an extended period of Federal Reserve accommodation and weak job creation came to an abrupt end when unexpectedly strong employment figures forced policymakers into a rapid tightening cycle.
Equity markets then spent months moving sideways before eventually stabilising after the Mexican peso crisis and Orange County bankruptcy halted the rise in bond yields.
Inflation Signals Flash Caution
According to Hartnett, U.S. inflation has averaged 0.5% month-over-month during the past six months, putting it on pace to move above 5% by the time midterm elections take place.
Meanwhile, unemployment remains at 4.3%, only slightly above the current CPI reading of 4.2%.
Historically, such a narrow gap between inflation and unemployment has often coincided with periods of aggressive Federal Reserve tightening, episodes that have rarely been favourable for financial markets.
Sell Signal Remains in Place
Bank of America’s Bull & Bear Indicator increased to 8.8 from 8.7, marking a fourth consecutive week in sell-signal territory.
Strong demand for technology investments continued to drive the indicator higher, partially offsetting outflows from both high-yield credit and emerging-market bond funds.
Technology Leads Equity Fund Flows
Global equity funds attracted $31.5 billion during the week ending June 10.
Technology funds accounted for a record $12.3 billion of those inflows.
The Direxion Daily S&P500 Bull 3X Shares ETF (AMEX:SOXL) attracted $3 billion, while the iShares Semiconductor ETF (NASDAQ:SOXX) drew $2.9 billion.
U.S. equities extended their inflow streak to 11 straight weeks, the strongest run since late 2025.
Emerging-market stocks also returned to favour, attracting $4.5 billion after experiencing eight weeks of outflows. South Korean equities led regional inflows with $5.9 billion, their largest intake since March.
Outflows Hit Crypto, Gold and Money Markets
Elsewhere, investor appetite weakened noticeably.
Cryptocurrency funds recorded a record $6.6 billion in outflows over the last five weeks.
Gold funds posted their fourth consecutive week of withdrawals, losing $2.3 billion, while money market funds experienced $2.5 billion of outflows.
The latest flow data indicates that investors remain committed to equities and growth assets despite elevated bond yields and inflation concerns, reinforcing Hartnett’s argument that bullish positioning remains deeply entrenched even as conditions become increasingly challenging.
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