Bank of America strategist Michael Hartnett argues that equities could struggle to advance significantly from current elevated levels without the help of “two exogenous shocks.”
In his latest Flow Show note, Hartnett suggested that a sustained rally in risk assets may hinge on a “regime change in Middle East to secure abundant future oil supply and collapse in oil price” combined with a “Trump-Xi U.S.-China trade deal in April to reduce tariffs and improve Trump approval rating.”
According to Hartnett, both investor positioning and earnings expectations are sending contrarian warnings. He wrote that “positioning (extreme bull) & profits (consensus = boom) both say ‘sell’ stocks & credit; policy (tax & rate cuts) says ‘buy-any-dip.’”
On the sentiment front, BofA’s Bull & Bear Indicator slipped slightly to 9.4 from 9.5 but remained deep in “extreme bull” territory. Hartnett noted that the elevated reading reflects persistent inflows into global equity ETFs and technology-focused funds, along with broad participation across equity markets worldwide.
Historically, such stretched sentiment levels have tended to precede softer short-term returns. Hartnett pointed out that when the indicator has previously exceeded 9.5, the median three-month pullback has been roughly 4.3% for the MSCI All-Country World Index, 5.5% for the S&P 500 and 8.6% for the Nasdaq.
Fund flow data continues to show strong appetite for risk. Over the past week, equity funds attracted $35.2 billion, fixed income funds drew in $26.4 billion and cash vehicles saw $23.8 billion of inflows. Meanwhile, gold funds experienced $1.4 billion in outflows — the largest withdrawal in four months — and crypto funds recorded $0.8 billion in redemptions.
Among other notable patterns, BofA highlighted record four-week inflows into international equities totaling $64.6 billion, as well as the biggest six-week inflow on record into South Korean stocks.
The bank also observed that of every $100 directed into global equity funds in 2026, only $26 has gone into U.S. equities — the smallest proportion since 2020 — suggesting that the U.S. exceptionalism narrative is fading through weaker relative inflows rather than outright capital flight.