Stock Market Insights
Recently, things have been looking quite favorable for stocks. A new report from Bank of America suggests that this positive trend may be too good to last.
Since hitting a low point on April 8th, the S&P 500 and Vanguard global stock indexes have surged by 20%. Investors seem to be taking advantage of the market, with inflows happening at an almost record pace.
According to Bank of America’s chief investment strategist, Michael Hartnett, 2025 is witnessing the second-largest annual inflow into global stocks, second only to 2024. This marks our third strong year for stocks since 2024 and 2021.
However, amid all this bullishness, Hartnett indicates that global stocks might be nearing two warning signs.
First, there’s the inflow into stock funds. If 1% of current managed assets is reached within four weeks, that would trigger a sell signal. The past four weeks have seen flows at 0.9% of the fund’s assets under management (AUM). To hit that 1%, flows need to hit $30 billion soon, according to Hartnett.
The second warning comes from an assessment of market exuberance—investors often look to sell when 88% of indexes in ACWI countries trade above both the 50-day and 200-day moving averages. Currently, 84% are above said averages. Hartnett describes this as the market being in “acquired territory.”
Both of these indicators align with established investment wisdom, which includes advice from notable figures like Warren Buffett. The notion is that when the market is overwhelmingly positive, the good news may already be priced in. Conversely, when the mood is negative, that’s usually a prime opportunity to buy stocks at lower prices.
Nevertheless, sentiment indicators have been sending mixed messages lately. There’s a strong influx of money, yet sentiment data from AAII shows that investor outlook isn’t as positive as it may seem. Bank of America’s own bull/bear indicators suggest the overall sentiment is caught between optimism and a bit of pessimism, leaning slightly toward the optimistic side.
The breadth indicator mostly supports Hartnett’s assessment—most stocks currently are performing well.
Similarly, Liz Anne Sonders, chief investment strategist at Charles Schwab, expressed concerns about robust breadth levels in a report on May 27. She mentioned that the early April setup was conducive for a rally, clearing out negative sentiment and addressing overselling in the market. She finds the current setup quite interesting.
While breadth and sentiment can sometimes act as opposing indicators, it’s important to remember that momentum has been a dominant factor in the market over the last fifteen years. What was successful (like Mega-Cap Tech Stocks) tends to remain so, and significant market downturns have typically been brief. That might still hold true moving forward.
Apart from just technical metrics, investors are keeping an eye on fundamental economic indicators. The overall economic context is still somewhat murky, especially as both businesses and consumers navigate the implications of Trump’s tariffs. There are ongoing worries about how these import taxes might influence consumer prices and economic growth.
The U.S. economy added 139,000 jobs in May, which was more than economists expected, although earlier job data for March and April was revised, leaving some uncertainty about the labor market’s strength.
As concerns about inflation and the U.S. budget deficit loom large, long-term Treasury yields continue to climb.
A potential negative shift, such as rising unemployment or inflation, could lead to the type of market correction Hartnett has observed.
