Bank of America: Shift from exiting risk assets to defensive positioning this summer; recommends focusing on long-dated Treasuries, high-yield stocks, and the U.S. dollar.

Bank of America chief investment strategist Michael Hartnett has issued a fresh warning, noting the bank’s proprietary Bull & Bear Indicator has surged to an extreme historical level of 9.6. The latest fund manager survey shows current investor optimism rests on four core assumptions: no hard economic landing, no Federal Reserve rate hikes, no cuts to AI capital expenditure, and no Democratic sweep in the congressional midterm elections. Hartnett dubs this combination “no landing, no hike, no cut, no sweep” — the root cause of the market’s near-total lack of short positions. The latest fund flow data confirms the market’s extreme exuberance: U.S. equities saw a net inflow of $55.8 billion, while money market funds recorded a massive net outflow of $119.6 billion, marking the largest weekly cash withdrawal since April 2026; tech sector inflows totaled $48.8 billion over three weeks, a historical record. Hartnett describes this as institutional-driven, reckless momentum chasing. Hartnett advises decisively exiting risk assets this summer and shifting to long-dated Treasuries, defensive sectors, high-dividend stocks, and the U.S. dollar. He names U.S. mega-cap ETF MAGS as a key watch indicator: a break below $65 will drag down the entire cyclical sector, while a breakout above $70 will signal a re-entry point. The biggest tail risk lies in a scenario where mega-cap tech firms announce cuts to AI capital expenditure yet fail to push the Magnificent 7 to new highs — the resulting sharp negative shocks to growth and asset prices would trigger massive short selling in banks, brokers, and industrial stocks.