Bank of America strategist Michael Hartnett believes investors remain heavily committed to risk assets despite long-dated bond yields reaching 5%, although he argues that several of the conditions that typically bring bull markets to an end are beginning to emerge.
In his latest Flow Show report, Hartnett highlighted three developments that have historically punctured market booms and speculative bubbles: rising bond yields that increase the cost of capital, weakening leadership among market favourites, and political pressure arising from elections as voters push for stronger employment or lower inflation.
“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.”
He also pointed to 1994 as a potential template for what could unfold in 2026. During that period, a prolonged phase of Federal Reserve easing and a jobless recovery came to an abrupt end after unexpectedly strong employment data forced policymakers into a series of aggressive rate hikes.
Equity markets subsequently entered a lengthy period of consolidation and did not regain stability until bond yields stopped climbing following the Mexican peso crisis and the bankruptcy of Orange County later that year.
Inflation and Labour Market Trends Raise Concerns
Hartnett noted that U.S. consumer prices have increased by an average of 0.5% per month over the last six months, putting inflation on track to exceed 5% by the time midterm elections arrive.
At the same time, the unemployment rate stands at 4.3%, only marginally above the latest CPI reading of 4.2%.
According to Hartnett, periods in which unemployment and inflation move this closely together have historically coincided with phases of Federal Reserve tightening that investors have generally viewed unfavourably.
Bull & Bear Indicator Extends Sell Signal
Bank of America’s widely followed Bull & Bear Indicator rose slightly to 8.8 from 8.7, extending its sell signal for a fourth consecutive week.
The move was driven primarily by continued inflows into technology-focused investments, which offset withdrawals from high-yield debt and emerging-market bond funds.
Technology Funds Continue to Attract Capital
For the week ended June 10, global equity funds attracted $31.5 billion of new money.
Technology strategies accounted for a large share of that demand, drawing a record $12.3 billion.
Among the biggest beneficiaries were the Direxion Daily S&P500 Bull 3X Shares ETF (AMEX:SOXL), which received $3 billion of inflows, and the iShares Semiconductor ETF (NASDAQ:SOXX), which attracted $2.9 billion.
U.S. equities recorded their eleventh consecutive week of inflows, the longest streak since December 2025.
Emerging-market equities also returned to favour, attracting $4.5 billion after eight straight weeks of outflows. South Korean stocks led the trend, drawing $5.9 billion, their strongest inflow since March.
Investors Move Away From Crypto, Gold and Cash
While equities continued to attract fresh capital, several alternative asset classes experienced notable outflows.
Cryptocurrency investments recorded a record $6.6 billion of withdrawals over the past five weeks.
Gold funds experienced their fourth consecutive week of outflows, losing $2.3 billion, while money market funds saw investors pull out $2.5 billion.
The flow data suggests investors remain willing to embrace risk despite higher bond yields and growing concerns about inflation, supporting Hartnett’s view that market positioning remains firmly bullish even as warning signs begin to accumulate.