Quick overview

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According to Bank of America Securities, investors should be cautious with US stocks because a growing number of “bear market signposts” indicate an impending peak. In a June 5 note, strategists under  Savita Subramanian stated that there are “too many red flags.” They say, “Take profits.”.

About 70% of those bear-market signals have recently been activated, consistent with the average seen during previous market peaks. According to Subramanian, the benchmark SandP 500 Index was “statistically expensive on 17 of 20 metrics, and trades rich versus its tech bubble metrics on eight.”

Consumer confidence data, growth projections, M&A scores, credit stress, and indicators of tightening conditions, such as the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS), are among the metrics. The latter, which was published in May, demonstrated that consumer demand was still declining. Furthermore, stocks with high price-to-earnings ratios were significantly outperforming those with low multiples, which the strategists described as a “sign of excessive speculation.”.

According to Subramanian, the gap between the top and bottom performing quintiles in technology was the largest since February 2000.

The gap between returns for the top and bottom-performing 10ths of index stocks over the past three months has increased to a post-Covid-era high, she continued, adding that the S&P 500’s strong performance has “masked internal drama.” She referenced data from May through 1986. Certain tech-stock fundamentals, such as capital intensity, leverage, and valuation, are sound.