Source: Fortune
Summary
Bank of America’s strategy team, led by Savita Subramanian, advised investors to “take profits” on June 5, citing seven of the firm’s 10 bear-market signposts. The S&P 500 has since fallen about 4.5% from its June 1 record. Many leveraged funds suffered significant losses, with the Direxion Daily Semiconductor Bull 3X fund losing $4.1 billion in May. The Philadelphia Semiconductor Index fell 10.3% on June 5, its worst day since 2020, after Broadcom’s cautious guidance and a memory glut. Subramanian sees the S&P 500 ending the year at 7,100, below its current level.
Our Reading
The numbers tell one story.
Bank of America’s bear-market signposts are flashing red, with seven of 10 signals triggered. The firm’s valuation signals, including the Rule of 20, indicate that stocks are expensive. The gap between the priciest and cheapest stocks has also stretched to an extreme. Three of the five sentiment gauges have tripped, including investors’ high expectations for stocks and analysts’ lofty earnings growth forecasts. Credit signals are also flashing warning signs, with stress in corporate borrowing markets and banks making credit harder to get.
Bank of America is effectively saying that the party’s over, but the guests are still dancing.
Author: Evan Null
