Bank of America Warns of Numerous Bear Market Signals in US Stocks, Advises Profit-Taking

(Central News Agency, New York, 9th, Combined Foreign Reports) Bank of America strategists have warned that the US stock market is showing an increasing number of bear market signals. Citing "too many danger signals," they advise investors to be cautious and take profits.

According to Bloomberg News, strategists at Bank of America Securities, including Savita Subramanian, released a report on the 5th. Based on data from 1986 to May of this year, they noted that approximately 70% of bear market signals have recently appeared in US stocks. They added that a similar proportion of bear market signals had emerged on average before previous market tops.

Subramanian wrote that out of 20 price indicators for the S&P 500, 17 have currently reached statistically overvalued levels, and 8 indicators show overvaluation compared to the tech bubble period.

These indicators include consumer confidence, economic growth expectations, M&A potential scores, credit stress, and monetary tightening indicators, such as the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS). The May SLOOS results showed that US consumer demand continues to soften.

Furthermore, the BofA strategists pointed out that stocks with high price-to-earnings (P/E) ratios have significantly outperformed those with low P/E ratios, calling this a "sign of excessive speculation." The performance gap between the top 20% and bottom 20% of tech stocks is the largest since February 2000.

Subramanian warned that the recent strong performance of the S&P 500 masks a sharp divergence among its components. In fact, the return gap between the top 10% and bottom 10% of stocks over the past three months has reached a post-COVID-19 pandemic high.

Regarding tech stocks, while the BofA strategists see some fundamentals as still healthy, such as leverage, valuation, and capital intensity, most fundamentals have weakened compared to their analysis in November of last year.

Specifically, they cited a stagnation in cash flow conversion rates, an increase in the supply of investment-grade bonds and stocks, a decline in the ratio of share buybacks to market capitalization, and a projected surge in capital expenditure relative to operating cash flow for hyperscale data center operators from 40% in 2023 to nearly 100% by the end of this year.

The BofA strategists concluded that while some individual stocks in the S&P 500 may still outperform the broader market, the market-cap-weighted index as a whole lacks opportunities. Subramanian currently sets a year-end target of 7100 points. (Editor: Zhang Zhengqian) 1150609