Bank of America Warns Investors to Take Profits as Bear Market Signals Mount

TLDR

• Bank of America says 70% of its bear market warning signals have been triggered
• The S&P 500 is “statistically expensive” on 17 of 20 valuation metrics
• Tech stocks show the widest performance spread since February 2000
• BofA’s year-end S&P 500 target is 7,100 — about 4.5% below current levels
• Strategists say opportunity lies in individual stocks, not the broader index

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Bank of America strategists are telling investors to take profits. Led by Savita Subramanian, the team says too many warning signs are flashing at once.

In a note dated June 5, the BofA Global Research team said 70% of its bear market “signposts” have now been triggered. Historically, that level lines up with prior market peaks.

The S&P 500 is currently “statistically expensive” on 17 out of 20 valuation metrics, according to BofA. It also trades above its own dot-com bubble levels on eight of those measures.

Consumer confidence is softening. The Federal Reserve’s Senior Loan Officer Opinion Survey, released in May, showed demand for consumer loans continued to fall.

High price-to-earnings stocks are outperforming low P/E stocks by a wide margin. BofA calls this a “sign of excessive speculation.”

Long-term growth expectations for the S&P 500 have also hit levels that make equities “more vulnerable to disappointment,” the team said.

Despite all this, the S&P 500’s forward P/E ratio has actually dropped this year — from 22.18 on January 1 to 20.77. That’s because earnings estimates, especially in tech and energy, are rising faster than stock prices.

Tech Stocks Show Widest Gap Since the Dot-Com Era

Inside the technology sector, the gap between the best and worst performing stocks is at its highest since February 2000. That was near the peak of the dot-com bubble.

The broader S&P 500 has also seen wide internal splits. The gap between its top and bottom 10% of performers over the last three months hit a post-Covid high.

Megacap tech and AI-related stocks have driven most of the index’s gains. The S&P 500 is up nearly 9% year to date.

Energy and tech are the top-performing sectors so far in 2026, up 28.7% and 19.5% respectively. Financials, healthcare, and consumer discretionary are all in negative territory for the year.

Some tech fundamentals remain solid — leverage, valuation, and capital intensity look manageable. But BofA notes cash flow conversion has flattened, and capital spending for large tech companies is forecast to hit nearly 100% of operating cash flow by year-end, up from 40% in 2023.

Where BofA Sees Opportunity

BofA is not calling for investors to exit the market entirely. The team says individual stock selection still offers value.

“We see opportunity in S&P 500 stocks, but not the overall cap-weighted index,” Subramanian said.

The firm’s year-end S&P 500 price target remains at 7,100. The index closed Monday at around 7,406 — about 4.5% above that target.

On Monday, the S&P 500 rose 0.3% and the Nasdaq gained 0.9%, bouncing back after a selloff on Friday.