Signals of overheated risk appetite are intensifying, with bonds and cash attracting inflows while U.S. equities and gold face pressure

Overview

This report is Bank of America's weekly global investment strategy update on fund flows and multi-asset observations, centered on long-term U.S. asset returns, recent cross-asset performance, global flow trends, and BofA's proprietary risk-appetite indicator. The title emphasizes 'Red, White and Prosperity,' both reviewing 250 years of U.S. economic and financial market performance and warning that current market risk appetite has become crowded.

Core views

The report's core view is that long-term total returns in U.S. equities still demonstrate powerful compounding advantages, but short-term market risk appetite has become overheated. The BofA Bull & Bear indicator has risen to 9.5 and is in sell-signal territory; historically, after similar signals, global equities have fallen an average of 2%-3% over the following 2-3 months. On the flow side, cash and bonds are clearly attracting inflows, while U.S. equities, gold, crypto assets, and some cyclical sectors are seeing outflows; at the same time, technology stocks continue to receive strong inflows, showing that the AI and U.S. growth themes remain crowded.

Analysis framework

The report combines EPFR and other flow data, BofA private client asset allocation, hedge fund positioning, cross-asset return rankings, long-term U.S. economic and financial history, and BofA proprietary indicators to assess asset rotation, risk appetite, and potential pullback risk.

Methodology notes

• Sentiment and positioning indicatorBofA Bull & Bear indicator

  Measures market risk appetite using factors such as fund flows, hedge fund positioning, and bond-versus-equity allocations.

  This period's indicator rose from 9.1 to 9.5, and the report explicitly labels the signal as a sell; historical backtesting shows 17 sell signals since 2002, followed by an average 2%-3% decline in global equities over the next 2-3 months, though this is a backtest and not a guarantee.

• Flow analysisGlobal fund flows

  Tracks weekly and year-to-date flows by asset class, region, style, and sector.

  The report uses flows in equities, bonds, cash, commodities, gold, crypto assets, as well as regional and sector flows, to judge changes in investor preferences.

• Private client asset allocationBofA private client flows & allocations

  Observes changes in equity, bond, cash, and ETF allocations within BofA private client AUM.

  Private clients currently allocate 65.4% to equities, 17.6% to bonds, and 9.8% to cash, while extending duration in U.S. Treasuries.

• Historical multi-asset comparisonCross-asset return rankings and long-term U.S. history

  Compares long-term U.S. economic and financial performance with cross-asset returns year to date in 2026.

  The report uses data on population, GDP, inflation, Treasury yields, and equity returns since U.S. independence as background, and lists the performance of assets such as commodities, crude oil, international equities, SPX, gold, and bitcoin in 2026.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. equities

  Core risk asset and object of flow observation

  Strengths

  Over the long term, U.S. equities have shown strong historical total returns, with the S&P 500 generating about 9.3% annualized total returns over the past 150 years.

  Weaknesses

  U.S. equities saw $17.2 billion of outflows this week, and the BofA Bull & Bear sell signal points to short-term pullback risk.

  Comparison

  Year to date, SPX is up 9.3%, lagging commodities at 33.3%, crude oil at 19.2%, and international equities at 12.0%.

  Risks

  Crowded positioning, overheated valuations or sentiment, and a global equity pullback over the next 2-3 months.

• Technology stocks and AI-related assets

  One of the sector themes with the strongest inflows

  Strengths

  Technology funds saw about $14.3 billion to $14.4 billion of inflows this week and are on track for a record $152 billion of inflows year to date in 2026.

  Weaknesses

  The AI arms-race-related mega-cap basket MAGS has traded sideways for a third consecutive quarter, suggesting the rally may be starting to diverge.

  Comparison

  Compared with large outflows from materials and energy, technology continues to attract significant capital.

  Risks

  Crowded flows, overly high earnings expectations, and cooling thematic trading.

• Bonds

  A major inflow asset class this week

  Strengths

  Bonds saw $29.1 billion of inflows this week, with signs of inflows across IG bonds, high yield bonds, municipal bonds, government bonds, and TIPS.

  Weaknesses

  Government bonds are down -1.2% year to date and remain affected by interest-rate volatility.

  Comparison

  Bonds are attracting stronger inflows than equities and gold, indicating rising demand for yield and duration allocation.

  Risks

  A renewed rise in interest rates, recurring inflation, and widening credit spreads.

• Gold and precious metals

  Indicator of precious metal flows and inflation/safe-haven trades

  Strengths

  Gold remains an important cross-asset and safe-haven allocation indicator.

  Weaknesses

  Gold has seen outflows for 7 consecutive weeks, with $3.0 billion of outflows this week, and is down 4.7% year to date.

  Comparison

  Compared with commodities overall being up 33.3% year to date, gold has significantly underperformed.

  Risks

  Rising real rates, a stronger dollar, and declining safe-haven demand.

• Commodities and crude oil

  Leading assets year to date in 2026

  Strengths

  Commodities are up 33.3% year to date and crude oil is up 19.2%, ranking near the top in cross-asset returns.

  Weaknesses

  The report notes that oil prices fell 31% in Q2, and the energy sector saw $3.2 billion of outflows this week, indicating weakening short-term momentum.

  Comparison

  Year to date, commodities have outperformed SPX, international equities, gold, and bonds.

  Risks

  Slowing demand, a decline in geopolitical premium, and continued outflows from energy.

• Crypto assets and bitcoin

  High-volatility risk-appetite assets

  Strengths

  They can serve as indicators of changes in market risk appetite.

  Weaknesses

  Crypto assets saw $2.0 billion of outflows this week, the largest since November 2025; bitcoin is down 30.1% year to date.

  Comparison

  Performance is significantly weaker than equities, commodities, and cash.

  Risks

  Liquidity tightening, regulatory pressure, and cooling risk appetite.

• Emerging markets and small caps

  Potential cyclical breakout directions mentioned in the report

  Strengths

  The report says emerging markets and small caps are showing signs of long-term breakouts, with small caps up 21% in Q2.

  Weaknesses

  EM equities saw $4.0 billion of outflows this week, the third consecutive week of outflows; China-related flows remain heavily negative year to date.

  Comparison

  International equities are up 12.0% year to date, outperforming SPX at 9.3%.

  Risks

  The dollar, global liquidity, regional growth, and policy uncertainty.

Key data

• Weekly cash flows$55 billion inflowCash was one of the largest inflow asset classes this week.
• Weekly bond flows$29.1 billion inflowBonds have seen inflows for 62 consecutive weeks; IG bonds had $17.2 billion of inflows and HY bonds $3.4 billion.
• Weekly equity flows$13.9 billion outflowETFs saw $5.2 billion of inflows, but mutual funds saw $18.8 billion of outflows.
• U.S. equity flows$17.2 billion outflowThe largest outflow since March 2026.
• Gold flows$3.0 billion outflowThe 7th consecutive week of outflows, the longest streak since March 2024.
• Crypto asset flows$2.0 billion outflowThe largest outflow since November 2025.
• Technology fund flowsAbout $14.3 billion to $14.4 billion inflowThe report says technology funds are on track for a record $152 billion of inflows year to date in 2026.
• BofA Bull & Bear indicator9.5Rose from 9.1 to 9.5 and is in the sell-signal range.
• Private client AUM allocationEquities 65.4%, bonds 17.6%, cash 9.8%Total private client AUM is about $4.5 trillion.
• 2026 year-to-date performanceCommodities 33.3%, crude oil 19.2%, international equities 12.0%, SPX 9.3%, gold -4.7%, bitcoin -30.1%The report presents cross-asset returns in U.S. dollar terms.

Impact & implications

For investors, the implication is that short-term overheated risk appetite and the pullback risk of crowded trades should not be ignored. Bonds, cash, and some defensive or income-oriented assets are attracting inflows, showing continued demand for duration and safe-haven/liquidity exposure; however, sustained large inflows into technology stocks also mean AI-related trades still have momentum, while crowding is increasing. Outflows from gold, materials, energy, and crypto assets suggest that inflation, war, and commodity-related trades are cooling.

Risks

• The BofA Bull & Bear indicator is in the elevated sell-signal zone at 9.5, pointing to overheated risk appetite.
• Strong inflows into technology and AI trades may create pullback risk from crowded positioning.
• U.S. equities recorded the largest weekly outflow since March 2026, which may weaken short-term market momentum.
• Outflows from gold, materials, energy, and crypto assets indicate capital is leaving some inflation and high-volatility themes.
• The historical performance of the BofA Bull & Bear indicator in the report is based on backtesting and should not be viewed as a guarantee of future returns.

What to watch

• Whether the BofA Bull & Bear indicator remains in the sell-signal zone or begins to decline.
• Whether U.S. equity flows turn from outflows to inflows, especially in large caps, growth, and value stocks.
• Whether technology fund inflows can continue and whether AI-related assets such as MAGS can break out of their sideways trend.
• Whether bond inflows continue to broaden across IG, HY, government bonds, TIPS, and municipals.
• Whether gold and precious metals end their streak of outflows and regain safe-haven or inflation-hedging demand.
• Whether private clients continue shifting from T-bills to T-notes to extend duration.
• Whether the relative strength in emerging markets, small caps, and international equities continues.