Bank of America: Market sentiment index hits the most extreme bullish level since 2021, investors should appropriately reduce their risk exposure.

Bank of America strategists have stated that investor bullish sentiment has reached extreme levels, signaling it is time to begin reducing exposure to risk assets. In a report, the team led by Michael Hartnett noted that the bank’s Bull & Bear Index has climbed from 9.4 to 9.7, hitting its highest point since 2021. They pointed to a broadening stock market rally, massive inflows into high-yield bonds, and narrowing credit spreads as the drivers behind investors’ optimism. The team favors defensive assets, arguing that these holdings help portfolios fend off potential negative shocks from the economy, monetary policy, and the artificial intelligence sector. Hartnett commented, “We are still in a summer ‘rotation/retreat’ phase, not a ‘reloading’ phase.” He advised investors to reduce allocations to risk assets, or shift to defensive assets, duration assets, and the U.S. dollar.