BofA: Funds continue to flow into equities and technology, but the extreme bullish signal suggests lowering risk exposure

Overview

This report, The Flow Show, focuses on global cross-asset flows, market positioning, and second-half macro-trade scenarios. It notes that the market’s current consensus is that there will be no landing, no near-term Fed rate hikes, no cuts to AI capex, and no Democratic sweep in the US midterms, so risk assets continue to be bid. At the same time, BofA says the Bull & Bear Indicator is at 9.5, an extreme bullish level, and has triggered a sell signal; after similar signals historically, ACWI has seen an average 2-3% drawdown over the next 2-3 months, with maximum drawdowns of 15-20%, so risk exposure should be reduced.

Core views

The core views are: first, capital remains tilted toward risk assets, especially equities and technology, with $56.4bn inflow into equities this week and $18.8bn into technology. Second, cash has not been meaningfully weakened; money market fund assets have risen to a new high of $7.9tn, indicating that high cash positioning remains part of the market structure. Third, the market is currently unwilling to short risk assets; as long as MAGS holds above its 200-day moving average and AUDJPY holds above 110, investors are more likely to continue adding risk or rotating rather than fully hedging. Fourth, the most important upside-down risks in H2 come from economic slowdown, Fed hikes, AI capex cuts, and the outcome of the US midterm election. Fifth, gold can serve as a hedge under certain political-risk scenarios; the report mentions that if Trump’s approval rating has not rebounded clearly before Labor Day, gold can be bought in September to hedge Wall Street greed-top risk.

Analysis framework

The report mainly relies on fund flows, positioning indicators, asset return ranking, private client allocation, presidential-cycle historical statistics, and macro-scenario simulation to make its judgment. On flows, it tracks inflows and outflows across equities, bonds, cash, gold, crypto, and by region, industry, and style. For sentiment, it uses the BofA Bull & Bear Indicator to measure crowding. At the macro level, it centers on the consensus of no landing, no hikes, no AI capex cuts, and no Democratic sweep, and analyzes potential contrary trade scenarios.

Methodology notes

• Market sentiment and positioningBofA Bull & Bear Indicator

  Extreme bullish reading and sell signal

  The indicator is currently 9.5, which is in the extreme bullish area. The report says the sell signal has been triggered. Over the last 24 years, 17 similar signals occurred, with ACWI subsequently falling 2-3% on average over 2-3 months, a hit rate of about 60%, and a maximum drawdown of 15-20%.

• Fund flow analysisGlobal fund flows

  Cross-asset and sectoral fund flows

  The report tracks fund flows in equities, bonds, cash, gold, crypto, and fund flows by region, style, and sector to assess investor risk appetite and crowded trade direction.

• Historical cycle analysisPresidential cycle

  Stock and bond performance patterns within US presidential terms

  The report analyzes 39 presidential terms since 1873, noting that equity performance is weaker on average in years 1 and 2, strongest in year 3, and still relatively strong in year 4, and treats the midterm election as a key binary event for H2.

Asset mapping & comparison

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

• Equities

  Strong inflows but crowded positioning

  Strengths

  This week saw $56.4bn inflow, and risk appetite remains strong, with support from both the US and emerging markets.

  Weaknesses

  The Bull & Bear Indicator is extreme bullish, and drawdown risk rises after the historical sell signal.

  Comparison

  Compared with bonds, it is chased more by flows, but relative to cash and defensive assets, its risk-return has become more dependent on an optimistic consensus.

  Risks

  Economic slowdown, Fed rate hikes, US midterm election shock, or cuts in AI capex.

• Technology stocks

  One of the strongest flow directions

  Strengths

  This week saw $18.8bn inflow, and 2026 inflows are expected to reach a record $183bn.

  Weaknesses

  Highly tied to AI capex expectations, with relatively high trading crowding.

  Comparison

  Compared with traditional cyclical sectors, it is more favored by flows but more sensitive to AI-investment narrative shifts.

  Risks

  If the largest hyperscalers cut AI capex, the report proposes a contrarian setup of long software and Mag7 and short SOX.

• Cash

  High-level buffer

  Strengths

  This week saw $39.5bn inflow, and money market fund assets reached an all-time high of $7.9tn.

  Weaknesses

  If risk appetite continues, cash may come under reallocation pressure.

  Comparison

  Compared with equities, upside asymmetry is lower, but it provides defensive characteristics in high real-rate and uncertainty environments.

  Risks

  Policy shifts or continued risk-asset outperformance may reduce the attractiveness of cash.

• Bonds

  Persistent inflows but constrained by real yields

  Strengths

  Bonds have had inflows for 63 consecutive weeks, with $31.3bn this week; IG, Treasuries, and munis all receive flow support.

  Weaknesses

  The US 30-year real yield is at its highest level since November 2008, and the market still favors "Anything But Bonds."

  Comparison

  Compared with equities, sentiment is weaker, but if the economy slows, 10-year sovereign bonds could become a beneficiary in contrarian trades.

  Risks

  Fed rate hikes, sticky inflation, and rising term premium may continue to suppress bonds.

• Gold

  Hedge for political and market-top risk

  Strengths

  $0.3bn reinflow into precious metals; the report cites gold’s hedging value under a Democratic sweep midterm-election risk scenario.

  Weaknesses

  Gold is down -5.0% year-to-date, and private clients sold precious-metal-related ETF exposure over the past four weeks.

  Comparison

  It lacks current flow heat compared with equities, but its defensive characteristics are more pronounced when the US dollar falls, yields fall, or political risk rises.

  Risks

  If risk appetite persists and real yields remain high, gold may remain under pressure.

Key data

• Weekly equities flow$56.4bn inflowThe report says this is the 4th largest weekly inflow year-to-date.
• Weekly cash flow$39.5bn inflowMoney market fund assets reached a historical high of $7.9tn.
• Weekly bond flow$31.3bn inflowBonds have had inflows for 63 consecutive weeks, and IG bonds have had 14 straight weeks of $16.0bn inflow.
• Technology sector flows$18.8bn inflowTech funds are expected to record a record $183bn inflow in 2026.
• China equities flow$9.0bn inflowLargest inflow since December 2025.
• BofA Bull & Bear Indicator9.5Maintains an extreme bullish reading, and the report says the sell signal has been triggered.
• BofA private client allocation65.7% equities, 17.3% bonds, 9.7% cashPrivate clients bought municipal bonds, healthcare, and utility ETFs in the past four weeks, and sold MLP, energy, and commodity exposures including precious metals.
• 25/25/25/25 portfolio performanceabout 16% annualized year-to-dateComposed of 25% each in US equities, bonds, commodities, and cash, showing multi-asset diversification remains effective.

Impact & implications

For investment implications, the report is not simply bearish on risk assets; it believes current gains in risk assets still have support from flows and narrative, but positioning and sentiment are overheated, and investors should shift from chasing upside to controlling risk. Strong inflows into equities and technology indicate the trend remains strong, but the Bull & Bear sell signal raises the probability of a 2-3 month drawdown ahead. Bonds, cash, and defensive sectors still have allocation value; if economic slowdown or political risk increases, duration assets, defensive equities, high-dividend stocks, and gold could benefit.

Risks

• The BofA Bull & Bear Indicator is at an extreme bullish level of 9.5 and has triggered a sell signal, indicating crowded positioning and drawdown risk.
• The current no-landing consensus could be broken if weak employment data or economic slowdown appears.
• If the Fed hikes rates before the midterm election, the US dollar, yield curve, and risk assets could be repriced.
• If AI capex is cut, technology and semiconductors may come under pressure.
• If the US midterms result in a Democratic sweep, the report says this could become an event of falling yields, falling US dollar, and falling equities.
• If rising Japanese government bond yields begin to weigh on Japanese banks, that may become an early warning signal of worsening global risk appetite.

What to watch

• Whether the BofA Bull & Bear Indicator falls from 9.5 or whether the sell signal continues.
• Whether MAGS holds the 200-day moving average, and whether AUDJPY holds above 110.
• US employment data, the relationship between CPI and unemployment, and Fed policy signals before the midterm election.
• Whether hyperscaler AI capex is close to market expectations of about $800bn in 2026 and about $1tn in 2027.
• Changes in US midterm election probabilities, especially whether there is a risk of a Democratic sweep.
• Whether flows into China equities, technology, financials, and emerging markets can be sustained.
• Whether money market fund assets continue to hit new highs and whether cash is being rotated back into risk assets.